<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 9, 1998
REGISTRATION NO. 333-65127
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
AMENDMENT NO.1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
FIRST CONSULTING GROUP, INC.
(Exact name of Registrant as specified in its charter)
--------------------------
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<S> <C> <C>
DELAWARE 8742 95-3539020
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
incorporation or organization) Number)
</TABLE>
--------------------------
111 W. OCEAN BOULEVARD, 4TH FLOOR
LONG BEACH, CALIFORNIA 90802
(562) 624-5200
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
--------------------------
LUTHER J. NUSSBAUM
CHIEF EXECUTIVE OFFICER
FIRST CONSULTING GROUP, INC.
111 W. OCEAN BOULEVARD, 4TH FLOOR
LONG BEACH, CALIFORNIA 90802
(562) 624-5200
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
--------------------------
COPIES TO:
PATRICK A. POHLEN, ESQ. DAVID S. ANTZIS, ESQ.
Cooley Godward LLP Saul, Ewing, Remick & Saul, LLP
Five Palo Alto Square 1055 Westlakes Drive, Suite 150
3000 El Camino Real Berwyn, PA 19312
Palo Alto, CA 94306 (610) 251-5050
(650) 843-5000
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable following the effectiveness of this Registration
Statement and the effective time of the proposed merger of Foxtrot Acquisition
Sub, Inc. with and into Integrated Systems Consulting Group, Inc. ("ISCG"), as
described in the Agreement and Plan of Merger and Reorganization, dated as of
September 9, 1998, attached as Appendix A to the Joint Proxy
Statement/Prospectus forming a part of this Registration Statement (the
"Reorganization Agreement").
If the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(a) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE>
PRELIMINARY JOINT PROXY STATEMENT OCTOBER , 1998
[FCG LOGO]
111 W. OCEAN BOULEVARD, 4TH FLOOR
LONG BEACH, CALIFORNIA 90802
Dear Stockholder:
As you may be aware, First Consulting Group, Inc., a Delaware corporation
("FCG"), and Integrated Systems Consulting Group, Inc., a Pennsylvania
corporation ("ISCG"), have entered into an Agreement and Plan of Merger and
Reorganization dated as of September 9, 1998 (the "Reorganization Agreement")
providing for the acquisition of ISCG by FCG as described below. Pursuant to the
Reorganization Agreement, a special meeting of the stockholders of FCG (the "FCG
Special Meeting") will be held at 111 W. Ocean Boulevard, 4th Floor, Long Beach,
California 90802 on [ ], 1998 at 9:00 a.m. local time.
At the FCG Special Meeting you will be asked to consider and vote upon a
proposal to approve the issuance of shares of Common Stock, par value $0.001 per
share, of FCG ("FCG Common Stock") pursuant to the Reorganization Agreement.
Pursuant to the Reorganization Agreement, a wholly-owned subsidiary of FCG will
be merged with and into ISCG (the "Merger"). Upon consummation of the Merger,
ISCG will become a wholly-owned subsidiary of FCG. In the Merger, each
outstanding share of Common Stock, par value $0.005 per share, of ISCG ("ISCG
Common Stock"), other than shares of ISCG Common Stock held by ISCG shareholders
who properly exercise their dissenters' rights, will be converted into the right
to receive 0.77 of a share of FCG Common Stock (as adjusted for any stock split,
stock dividend, reverse stock split, reclassification, recapitalization or
similar transaction) (the "Exchange Ratio"). The Merger is described more fully
in the accompanying Joint Proxy Statement/Prospectus.
After careful consideration, the Board of Directors of FCG (the "FCG Board
of Directors") has unanimously approved the Reorganization Agreement and the
Merger, and has concluded they are fair to, and in the best interests of, FCG
and its stockholders. The FCG Board of Directors unanimously recommends that you
vote in favor of the issuance of shares of FCG Common Stock pursuant to the
Reorganization Agreement.
In the materials accompanying this letter you will find a Notice of Special
Meeting of Stockholders, a Joint Proxy Statement/Prospectus relating to the
proposal to be voted upon at the FCG Special Meeting and a Proxy Card. The Joint
Proxy Statement/Prospectus more fully describes the proposed transaction and the
proposal before the FCG stockholders.
All FCG stockholders are cordially invited to attend the FCG Special Meeting
in person. If you attend the FCG Special Meeting, you may vote in person if you
wish even though you have previously returned your completed proxy card. WHETHER
OR NOT YOU PLAN TO ATTEND THE FCG SPECIAL MEETING, IT IS IMPORTANT THAT YOUR
SHARES BE REPRESENTED AND VOTED, REGARDLESS OF HOW MANY SHARES YOU HOLD.
APPROVAL OF THE ISSUANCE OF SHARES OF FCG COMMON STOCK REQUIRES THE AFFIRMATIVE
VOTE OF THE HOLDERS OF A MAJORITY OF THE OUTSTANDING SHARES OF FCG COMMON STOCK
PRESENT IN PERSON OR REPRESENTED BY PROXY AT THE FCG SPECIAL MEETING AND
ENTITLED TO VOTE THEREAT. THEREFORE, PLEASE COMPLETE, SIGN, DATE AND RETURN YOUR
PROXY CARD IN THE ENCLOSED ENVELOPE.
On behalf of the FCG Board of Directors, I thank you for your support and
ask you to vote in favor of the issuance of shares in this transaction.
Sincerely,
/s/ LUTHER J. NUSSBAUM
Luther J. Nussbaum
CHIEF EXECUTIVE OFFICER
YOUR VOTE IS IMPORTANT--PLEASE RETURN YOUR PROXY CARD PROMPTLY
<PAGE>
PRELIMINARY JOINT PROXY STATEMENT
[FCG LOGO]
111 W. OCEAN BOULEVARD, 4TH FLOOR
LONG BEACH, CALIFORNIA 90802
------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON [ ], 1998
------------------------
TO THE STOCKHOLDERS OF FIRST CONSULTING GROUP, INC.:
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders (the "FCG
Special Meeting") of First Consulting Group, Inc., a Delaware corporation
("FCG"), will be held on [ ], 1998 at 9:00 a.m. local time at 111 W.
Ocean Boulevard, 4th Floor, Long Beach, California 90802 to consider and vote
upon the following proposal:
1. To approve the issuance of shares of Common Stock, $0.001 par value per
share, of FCG ("FCG Common Stock"), pursuant to the Agreement and Plan of
Merger and Reorganization, dated as of September 9, 1998, by and among
FCG, Integrated Systems Consulting Group, a Pennsylvania corporation
("ISCG"), and Foxtrot Acquisition Sub, Inc., a Delaware corporation and
wholly-owned subsidiary of FCG ("Merger Sub") (the "Reorganization
Agreement"). Pursuant to the Reorganization Agreement, Merger Sub will be
merged with and into ISCG and ISCG will become a wholly-owned subsidiary
of FCG (the "Merger"). A copy of the Reorganization Agreement is attached
as Appendix A to the Joint Proxy Statement/Prospectus accompanying this
Notice.
2. To transact such other business as may properly come before the FCG
Special Meeting or any adjournment or postponement thereof.
The proposed Merger and other related matters are more fully described in
the attached Joint Proxy Statement/Prospectus.
Stockholders of record at the close of business on [ ], 1998 are
entitled to notice of, and to vote at, the FCG Special Meeting and any
adjournments or postponements thereof.
All stockholders are cordially invited to attend the FCG Special Meeting in
person. Whether or not you expect to attend, WE URGE YOU TO SIGN AND DATE THE
ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENVELOPE PROVIDED.
By Order of the Board of Directors
/s/ PATRICIA A. LOWERY
Patricia A. Lowery
SECRETARY
Long Beach, California
October , 1998
<PAGE>
PRELIMINARY JOINT PROXY STATEMENT OCTOBER , 1998
[ISCG LOGO]
575 EAST SWEDESFORD ROAD
WAYNE, PENNSYLVANIA 19087
Dear Shareholder:
As you may be aware, Integrated Systems Consulting Group, Inc., a
Pennsylvania corporation ("ISCG"), and First Consulting Group, Inc., a Delaware
corporation ("FCG"), have entered into an Agreement and Plan of Merger and
Reorganization dated as of September 9, 1998 (the "Reorganization Agreement")
providing for the acquisition of ISCG by FCG as described below. The combined
company is expected to be named First Consulting Group, Inc. Pursuant to the
Reorganization Agreement, a special meeting of the shareholders of ISCG (the
"ISCG Special Meeting") will be held at 575 East Swedesford Road, Wayne,
Pennsylvania 19087 on [ ], 1998 at 9:00 a.m. local time.
At the ISCG Special Meeting, you will be asked to consider and vote upon a
proposal to approve and adopt the Reorganization Agreement, and approve the
merger of a wholly-owned subsidiary of FCG with and into ISCG (the "Merger").
Upon consummation of the Merger, ISCG will become a wholly-owned subsidiary of
FCG. As a result of the Merger, each outstanding share of Common Stock, par
value $0.005 per share, of ISCG ("ISCG Common Stock"), other than shares of ISCG
Common Stock held by ISCG shareholders who properly exercise their dissenters'
rights, will be converted into the right to receive 0.77 of a share of Common
Stock, par value $0.001 per share, of FCG (as adjusted for any stock split,
stock dividend, reverse stock split, reclassification, recapitalization or
similar transaction (the "Exchange Ratio")). The Merger is described more fully
in the accompanying Joint Proxy Statement/Prospectus.
After careful consideration, the Board of Directors of ISCG (the "ISCG Board
of Directors") has unanimously approved the Reorganization Agreement and the
Merger, and has concluded they are fair to, and in the best interests of, ISCG
and its shareholders. The ISCG Board of Directors unanimously recommends a vote
in favor of the adoption and approval of the Reorganization Agreement and
approval of the Merger.
In the materials accompanying this letter you will find a Notice of Special
Meeting of Shareholders to the ISCG shareholders, a Joint Proxy
Statement/Prospectus relating to the proposal to be voted upon at the ISCG
Special Meeting and a Proxy Card. The Joint Proxy Statement/Prospectus more
fully describes the proposed transaction and the proposal before the ISCG
shareholders.
All ISCG shareholders are cordially invited to attend the ISCG Special
Meeting in person. If you attend the ISCG Special Meeting, you may vote in
person if you wish even though you have previously returned your completed proxy
card. WHETHER OR NOT YOU PLAN TO ATTEND THE ISCG SPECIAL MEETING, IT IS
IMPORTANT THAT YOUR SHARES BE REPRESENTED AND VOTED, REGARDLESS OF THE NUMBER OF
SHARES YOU HOLD. APPROVAL OF THE MERGER REQUIRES THE AFFIRMATIVE VOTE OF THE
HOLDERS OF A MAJORITY OF THE OUTSTANDING SHARES OF ISCG COMMON STOCK. THEREFORE,
PLEASE COMPLETE, SIGN, DATE AND RETURN YOUR PROXY CARD IN THE ENCLOSED ENVELOPE.
PLEASE DO NOT SEND THE STOCK CERTIFICATE(S) REPRESENTING YOUR ISCG COMMON STOCK
AT THIS TIME.
On behalf of the ISCG Board of Directors, I thank you for your support and
ask you to vote in favor of approval and adoption of the Reorganization
Agreement and approval of the Merger.
Sincerely,
/s/ DAVID S. LIPSON
David S. Lipson
CHAIRMAN, CHIEF EXECUTIVE OFFICER AND
PRESIDENT
YOUR VOTE IS IMPORTANT--PLEASE RETURN YOUR PROXY CARD PROMPTLY
<PAGE>
PRELIMINARY JOINT PROXY STATEMENT
[ISCG LOGO]
575 EAST SWEDESFORD ROAD
WAYNE, PENNSYLVANIA 19087
------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON [ ], 1998
------------------------
TO THE STOCKHOLDERS OF INTEGRATED SYSTEMS CONSULTING GROUP, INC.:
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders (the "ISCG
Special Meeting") of Integrated Systems Consulting Group, Inc., a Pennsylvania
corporation ("ISCG"), will be held on [ ], 1998 at 9:00 a.m. local
time, at 575 East Swedesford Road, Wayne, Pennsylvania 19087 to consider and
vote upon the following proposal:
1. To approve and adopt the Agreement and Plan of Reorganization (the
"Reorganization Agreement"), dated as of September 9, 1998, among ISCG,
First Consulting Group, Inc., a Delaware corporation ("FCG"), and Foxtrot
Acquisition Sub, Inc., a Delaware corporation and wholly-owned subsidiary
of FCG ("Merger Sub"), and to approve the merger of Merger Sub with and
into ISCG (the "Merger") pursuant to which ISCG will become a
wholly-owned subsidiary of FCG. A copy of the Reorganization Agreement is
attached as Appendix A to the Joint Proxy Statement/Prospectus
accompanying this Notice.
2. To transact such other business as may properly come before the ISCG
Special Meeting or any adjournment or postponement thereof.
The proposed Merger and other related matters are more fully described in
the attached Joint Proxy Statement/Prospectus.
Shareholders of record at the close of business on [ ], 1998 are
entitled to notice of, and to vote at, the ISCG Special Meeting and any
adjournments or postponements thereof.
All shareholders are cordially invited to attend the ISCG Special Meeting in
person. Whether or not you expect to attend, WE URGE YOU TO SIGN AND DATE THE
ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENVELOPE PROVIDED.
By Order of the Board of Directors
/s/ DAVID D. GATHMAN
David D. Gathman
SECRETARY
Wayne, Pennsylvania
October , 1998
<PAGE>
PRELIMINARY JOINT PROXY STATEMENT
THE INFORMATION IN THIS JOINT PROXY STATEMENT/PROSPECTUS IS NOT COMPLETE AND MAY
BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS JOINT PROXY
STATEMENT/PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IS NOT
SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE
IS NOT PERMITTED.
<PAGE>
[FCG LOGO] [ISCG LOGO]
JOINT PROXY STATEMENT
FOR SPECIAL MEETINGS TO BE HELD ON [ ], 1998
[FCG LOGO]
PROSPECTUS
The Boards of Directors of First Consulting Group, Inc. ("FCG") and
Integrated Systems Consulting Group, Inc. ("ISCG") have agreed to merge a
subsidiary of FCG with and into ISCG. After the merger, ISCG will operate as a
wholly-owned subsidiary of FCG. Under the terms of the merger, FCG will pay to
ISCG shareholders 0.77 (which is referred to in this Joint Proxy
Statement/Prospectus as the "Exchange Ratio") of a share of FCG Common Stock for
each share of ISCG Common Stock that they own. In lieu of receiving FCG Common
Stock, ISCG shareholders have the right to demand dissenter's rights. ISCG
shareholders who properly demand dissenter's rights will receive in cash the
fair value of the shares of ISCG Common Stock that they held prior to the
merger. The fair value of ISCG Common Stock would be determined by a court or by
agreement between ISCG and the ISCG shareholder. We estimate that the shares of
FCG Common Stock to be issued to ISCG shareholders will represent approximately
% of the outstanding FCG Common Stock after the merger.
The merger cannot be completed unless the holders of FCG and ISCG Common
Stock approve the matters described in this document. We have scheduled special
meetings for the FCG stockholders and ISCG shareholders to vote on the matters
described in this document. At the FCG Special Meeting, FCG stockholders will be
asked to approve the issuance of shares of FCG Common Stock in the merger. At
the ISCG Special Meeting, ISCG shareholders will be asked to adopt and approve
the merger agreement and approve the merger of the subsidiary of FCG with and
into ISCG. YOUR VOTE IS VERY IMPORTANT.
Whether or not you plan to attend your special meeting, please take the time
to vote by completing and mailing the enclosed proxy card to us. If you sign,
date and mail your proxy card without indicating how you want to vote, your
proxy will count as a vote in favor of the merger.
You may vote at your special meeting if you own shares as of the close of
business on [ , 1998]. The dates, times and places of the Special
Meetings are as follows:
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FOR FCG STOCKHOLDERS: FOR ISCG SHAREHOLDERS:
, , 1998 , , 1998
9:00 a.m. local time 9:00 a.m. local time
111 W. Ocean Boulevard, 4th Floor 575 East Swedesford Road
Long Beach, California 90802 Wayne, Pennsylvania 19087
</TABLE>
This Joint Proxy Statement/Prospectus provides you with detailed information
about the proposed merger. FCG provided the information concerning FCG. ISCG
provided the information concerning ISCG. Please see "Where You Can Find More
Information" on page 1 for additional information about FCG and ISCG.
--------------------------
WE STRONGLY URGE YOU TO READ AND CONSIDER CAREFULLY THIS JOINT PROXY
STATEMENT/PROSPECTUS IN ITS ENTIRETY, INCLUDING THE MATTERS REFERRED TO UNDER
"RISK FACTORS" BEGINNING AT PAGE 24.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION ("SEC") NOR ANY STATE
SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED
UPON THE ADEQUACY OR ACCURACY OF THIS JOINT PROXY STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
We are first mailing this Joint Proxy Statement/Prospectus and the forms of
proxy on or about October [ ], 1998.
<PAGE>
TABLE OF CONTENTS
<TABLE>
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WHERE YOU CAN FIND MORE INFORMATION........................................................................ 1
QUESTIONS AND ANSWERS ABOUT THE FCG/ISCG MERGER............................................................ 2
SUMMARY.................................................................................................... 3
The Companies............................................................................................ 3
First Consulting Group, Inc............................................................................ 3
Integrated Systems Consulting Group, Inc............................................................... 3
Foxtrot Acquisition Sub, Inc........................................................................... 3
Our Reasons for the Merger............................................................................... 3
The Stockholders' Meetings............................................................................... 4
Record Date, Vote Power.................................................................................. 4
Our Recommendations to Our Stockholders.................................................................. 4
To the FCG Stockholders................................................................................ 4
To the ISCG Shareholders............................................................................... 4
Vote Required............................................................................................ 4
Voting Agreements........................................................................................ 4
Share Ownership of Management and Certain Holders........................................................ 5
The Merger............................................................................................... 5
When the Merger will Occur............................................................................. 5
What Shareholders will receive in the Merger........................................................... 5
Ownership of FCG Following the Merger.................................................................. 6
Material Federal Income Tax Consequences............................................................... 6
Opinion of Financial Advisors.......................................................................... 6
Interests of Certain Persons in the Merger............................................................. 7
Conditions to the Merger............................................................................... 7
Termination of the Reorganization Agreement............................................................ 8
Expenses and Termination Fees.......................................................................... 8
Affiliate Agreements................................................................................... 8
Registration Rights Agreement.......................................................................... 9
Anticipated Accounting Treatment....................................................................... 9
Regulatory Approvals................................................................................... 9
Rights of Dissenting Shareholders of ISCG.............................................................. 9
Forward-Looking Statements May Prove Inaccurate........................................................ 9
Markets and Market Prices.............................................................................. 10
FIRST CONSULTING GROUP, INC. SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION........................ 11
</TABLE>
i
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FCG'S SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION............................................... 11
INTEGRATED SYSTEMS CONSULTING GROUP, INC. SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION........... 12
UNAUDITED SELECTED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION...................................... 13
COMPARATIVE PER SHARE DATA (UNAUDITED)..................................................................... 14
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS................................................ 15
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS....................................... 22
RISK FACTORS............................................................................................... 24
Risks Relating to the Merger............................................................................. 24
Risks Relating to the Business of FCG.................................................................... 25
Risks Relating to the Business of ISCG................................................................... 30
THE FCG SPECIAL MEETING.................................................................................... 35
Purpose of the FCG Special Meeting....................................................................... 35
Proxies.................................................................................................. 35
Date, Time and Place of Meeting.......................................................................... 35
Voting Rights and Outstanding Shares..................................................................... 35
Solicitation............................................................................................. 35
Vote Required............................................................................................ 36
Revocability Of Proxies.................................................................................. 36
THE ISCG SPECIAL MEETING................................................................................... 36
Purpose of the ISCG Special Meeting...................................................................... 36
Proxies.................................................................................................. 36
Date, Time and Place of Meeting.......................................................................... 36
Voting Rights and Outstanding Shares..................................................................... 37
Solicitation............................................................................................. 37
Vote Required............................................................................................ 37
Revocability of Proxies.................................................................................. 38
COMPARATIVE PER SHARE MARKET PRICE DATA AND DIVIDEND POLICY................................................ 38
APPROVAL OF THE MERGER AND RELATED TRANSACTIONS............................................................ 39
Background of the Merger................................................................................. 39
Joint Reasons For the Merger............................................................................. 42
ISCG's Reasons For the Merger............................................................................ 42
</TABLE>
ii
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FCG's Reasons For the Merger............................................................................. 44
Opinion of Financial Advisor to ISCG..................................................................... 45
Opinion of Financial Advisor to FCG...................................................................... 50
Interests of Certain Persons in the Merger............................................................... 53
Voting Agreements........................................................................................ 54
Affiliate Agreements..................................................................................... 54
Registration Rights Agreement............................................................................ 55
Material Federal Income Tax Consequences................................................................. 56
Anticipated Accounting Treatment......................................................................... 58
Regulatory Matters....................................................................................... 58
Rights of Dissenting Shareholders of ISCG................................................................ 59
No FCG Appraisal Rights.................................................................................. 61
Resale of FCG Common Stock............................................................................... 61
THE REORGANIZATION AGREEMENT............................................................................... 61
General.................................................................................................. 61
Merger Consideration..................................................................................... 62
Stock Options and Warrants............................................................................... 62
Stock Ownership Following the Merger..................................................................... 63
Conversion of Shares; Procedures for Exchange of Certificates............................................ 63
Effect on Certificates................................................................................... 63
Corporate Matters........................................................................................ 64
Conditions to the Merger................................................................................. 64
Representations and Warranties........................................................................... 66
Covenants................................................................................................ 67
Termination.............................................................................................. 72
Expenses and Termination Fees............................................................................ 73
INFORMATION RELATING TO FCG................................................................................ 74
FCG BUSINESS............................................................................................. 74
Overview............................................................................................... 74
Services............................................................................................... 74
Service Delivery....................................................................................... 77
Research And Practice Support.......................................................................... 77
Clients................................................................................................ 78
Sales and Marketing.................................................................................... 78
International Operations............................................................................... 79
Employees.............................................................................................. 80
Facilities............................................................................................. 80
</TABLE>
iii
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Legal Proceedings...................................................................................... 80
FCG MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS................ 81
Overview............................................................................................... 81
Comparison of Six Months Ended June 30, 1998 and 1997.................................................. 82
Comparison of the Years Ended December 31, 1997 and 1996............................................... 83
Comparison of Years Ended December 31, 1996 and 1995................................................... 83
Comparison of Years Ended December 31, 1995 and 1994................................................... 84
Liquidity and Capital Resources........................................................................ 84
FCG MANAGEMENT AFTER THE MERGER.......................................................................... 85
Executive Officers And Directors....................................................................... 85
Recent Changes in Management........................................................................... 88
Board Composition...................................................................................... 88
Board Committees....................................................................................... 89
Director Compensation.................................................................................. 89
Executive Compensation................................................................................. 90
Option Grants In Last Fiscal Year...................................................................... 90
Aggregate Option Exercises In Last Fiscal Year......................................................... 91
Limitation Of Liability And Indemnification Matters.................................................... 91
CERTAIN TRANSACTIONS OF FCG.............................................................................. 92
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF FCG...................................... 93
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF ISCG..................................... 95
COMPARISON OF CAPITAL STOCK................................................................................ 97
Description of FCG Capital Stock......................................................................... 97
Description of ISCG Capital Stock........................................................................ 98
COMPARISON OF SHAREHOLDERS' RIGHTS......................................................................... 99
Size of the Board of Directors........................................................................... 99
Classified Board of Directors............................................................................ 99
Cumulative Voting........................................................................................ 99
Removal of Directors..................................................................................... 100
Filling Vacancies on the Board of Directors.............................................................. 100
Interested Director Transactions......................................................................... 100
Indemnification of Directors and Officers................................................................ 101
Amendments to the Certificate of Incorporation and Articles of Incorporation............................. 102
</TABLE>
iv
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Amendment of Bylaws...................................................................................... 102
Power To Call Special Shareholders' Meeting; Action By Consent........................................... 102
Inspection of Shareholders' List......................................................................... 103
Dividends and Repurchases of Shares...................................................................... 103
Approval of Certain Corporate Transactions............................................................... 104
Business Combination Following a Change of Control....................................................... 104
Shareholder Derivative Suits............................................................................. 104
Dissenters' Rights....................................................................................... 105
Dissolution.............................................................................................. 105
EXPERTS.................................................................................................... 106
LEGAL MATTERS.............................................................................................. 106
FCG STOCKHOLDER PROPOSALS.................................................................................. 106
ISCG SHAREHOLDER PROPOSALS................................................................................. 106
INDEX TO FCG CONSOLIDATED AND INTERIM FINANCIAL STATEMENTS................................................. F-1
</TABLE>
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APPENDICES:
Appendix A Agreement and Plan of Merger and Reorganization
Appendix B-1 Opinion of Robert W. Baird & Co. Incorporated
Appendix B-2 Opinion of Hambrecht & Quist LLC
Appendix C-1 Form of ISCG Voting Agreement
Appendix C-2 Form of FCG Voting Agreement
Appendix D-1 Form of ISCG Affiliate Agreement
Appendix D-2 Form of FCG Affiliate Agreement
Appendix E Form of Registration Rights Agreement
Appendix F PBCL Dissenters' Rights
</TABLE>
v
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
First Consulting Group, Inc. is a Delaware corporation. FCG's principal
executive offices are located at 111 W. Ocean Boulevard, 4th Floor, Long Beach,
California 90802, and its telephone number is (562) 624-5200. In this Joint
Proxy Statement/Prospectus, "FCG" refers to First Consulting Group, Inc. In
addition, "FCG Common Stock" refers to FCG's Common Stock, par value $0.001 per
share.
Integrated Systems Consulting Group, Inc. is a Pennsylvania corporation.
ISCG's principal executive offices are located at 575 East Swedesford Road,
Wayne, Pennsylvania 19087, and its telephone number is (610) 989-7000. In this
Joint Proxy Statement/Prospectus, "ISCG" refers to Integrated Systems Consulting
Group, Inc. In addition, "ISCG Common Stock" refers to ISCG's Common Stock, par
value $0.005 per share.
FCG and ISCG file annual, quarterly and special reports, proxy statements
and other information with the SEC. You may inspect and copy such material at
the public reference facilities maintained by the SEC at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, as well as at the SEC's regional offices
at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World
Trade Center, Suite 1300, New York, New York 10048. You may also obtain copies
of such material from the SEC at prescribed rates by writing to the Public
Reference Section of the SEC, 450 Fifth Street, N.W., Washington, D.C. 20549.
Please call the SEC at 1-800-SEC-0330 for more information on the public
reference rooms. You can also find our SEC filings at the SEC's website at
www.sec.gov.
The SEC allows ISCG to "incorporate by reference" the information contained
in documents that we file with them, which means that we can disclose important
information to you by referring you to those documents. The information
incorporated by reference is considered to be part of this Joint Proxy
Statement/Prospectus. Information in this Joint Proxy Statement/Prospectus
supersedes information incorporated by reference which we filed with the SEC
prior to the date of this Prospectus, while information that we file later with
the SEC will automatically update and supersede this information. We incorporate
by reference the documents listed below and any future filings we will make with
the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act
of 1934:
1. ISCG's Annual Report on Form 10-K for the fiscal year ended December 31,
1997;
2. ISCG's Quarterly Reports on Form 10-Q for the quarterly periods ended
March 31, 1998 and June 30, 1998;
3. ISCG's Current Reports on Form 8-K dated March 16, 1998 (as amended by a
Current Report on Form 8-K/A filed on May 11, 1998), September 15, 1998
and September 23, 1998;
4. The description of the ISCG Common Stock contained in the Registration
Statement on Form 8-A filed with the Commission on April 15, 1996;
5. ISCG's Definitive Proxy Statement on Schedule 14A dated April 30, 1998;
and
6. ISCG's Schedule 13D filed on September 21, 1998.
You may request a copy of these filings, at no cost to you, by writing or
telephoning ISCG at:
Integrated Systems Consulting Group, Inc.
Attention: Investor Relations
575 East Swedesford Road
Wayne, Pennsylvania 19087
Telephone (610) 989-7000
You should make your request by , 1998 to ensure delivery prior to
your special meeting.
FCG is not incorporating any documents by reference.
The ISCG Common Stock and the FCG Common Stock are each quoted on the Nasdaq
National Market ("Nasdaq"). The trading symbol for FCG is "FCGI." The trading
symbol for ISCG is "ISCG." You may inspect reports and other information
concerning FCG and ISCG at the offices of the National Association of Securities
Dealers, Inc., 1735 K Street, N.W., Washington, D.C. 20006.
YOU SHOULD RELY ONLY ON THE INFORMATION PROVIDED OR INCORPORATED BY
REFERENCE IN THIS JOINT PROXY STATEMENT/PROSPECTUS. WE HAVE AUTHORIZED NO ONE TO
PROVIDE YOU WITH DIFFERENT INFORMATION. YOU SHOULD NOT ASSUME THAT THE
INFORMATION IN THIS JOINT PROXY STATEMENT/PROSPECTUS IS ACCURATE AS OF ANY DATE
OTHER THAN THE DATE ON THE FRONT OF THE DOCUMENT.
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QUESTIONS AND ANSWERS
ABOUT THE FCG/ISCG MERGER
<TABLE>
<C> <S>
Q: WHY ARE THE TWO COMPANIES PROPOSING TO MERGE?
A: We believe that the merger will create a
combined company that will be able to:
- respond quickly and effectively to emerging
opportunities in the healthcare industry
- offer a broader range and scope of services
to the pharmaceutical and biotechnology
industries
- compete more effectively in providing these
services
Q: AS AN ISCG SHAREHOLDER, WHAT WILL I RECEIVE
IN THE MERGER?
A: Unless you properly exercise your dissenters'
rights, you will receive 0.77 of a share of
FCG Common Stock in exchange for each share
of ISCG Common Stock that you own. For
example, if you own 100 shares of ISCG Common
Stock, you will receive 77 shares of FCG
Common Stock in exchange for your shares.
Q: AS A FCG STOCKHOLDER, WILL I RECEIVE
ADDITIONAL SHARES OF FCG COMMON STOCK IN THE
MERGER?
A: You will continue to hold the same number of
shares of FCG Common Stock after the merger.
Additional shares of FCG Common Stock will be
issued in the merger.
Q: WHEN ARE THE STOCKHOLDERS' MEETINGS RELATING
TO THE MERGER AND WHAT SPECIFIC PROPOSALS
WILL I BE ASKED TO CONSIDER?
A: The FCG special meeting will take place on
1998. At the FCG special meeting,
FCG stockholders will be asked to approve the
issuance of FCG Common Stock to ISCG
shareholders in the merger. The Board of
Directors of FCG unanimously recommends
voting in favor of this proposal.
The ISCG Special Meeting will take place on
1998. At the ISCG Special Meeting,
ISCG shareholders will be asked to approve
and adopt the merger agreement and approve
the merger. The Board of Directors of ISCG
unanimously recommends voting in favor of
these proposals.
Q: IF I AM NOT GOING TO ATTEND THE STOCKHOLDER
MEETING, SHOULD I RETURN MY PROXY CARD
INSTEAD?
A: Yes. Please fill out and sign your proxy card
and mail it to us in the enclosed return
envelope as soon as possible. Returning your
proxy card ensures that your shares will be
represented at the special meeting.
Q: WHAT DO I DO IF I WANT TO CHANGE MY VOTE?
A: Send in a later-dated, signed proxy card to
your company's Secretary before the special
meeting or attend the special meeting in
person and vote.
Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A: No. After the merger is completed, we will
send ISCG shareholders written instructions
for exchanging their stock certificates. FCG
stockholders will keep their current
certificates.
Q: WHEN DO YOU EXPECT THE MERGER TO BE
COMPLETED?
A: We are working to complete the merger as
quickly as possible. We hope to complete the
merger within a few days of satisfying the
conditions of the merger agreement, including
conditions relating to stockholder approval.
Q: WHAT ARE DISSENTERS' RIGHTS AND HOW CAN I
PROPERLY EXERCISE THEM?
A: Dissenters' rights allow ISCG shareholders to
receive the fair value of their shares of
ISCG Common Stock in cash in lieu of FCG
Common Stock. To exercise dissenters' rights,
you must (1) notify ISCG of your intent to
exercise dissenters' rights, (2) effect no
change in your ownership in ISCG and (3)
refrain from voting in favor of the merger.
For a more detailed description of the
procedures ISCG shareholders must follow to
properly exercise their dissenters' rights,
see "Approval of the Merger and Related
Transactions--Rights of Dissenting
Shareholders of ISCG" beginning on page 59 of
this document. You should also read carefully
and in its entirety the full text of the
requirements of Pennsylvania law to exercise
dissenters' rights is attached as Appendix F
to this document. You should read this text
carefully and in its entirety. FCG
stockholders are not entitled to dissenters'
rights in the merger.
Q: WHAT ARE THE TAX CONSEQUENCES TO STOCKHOLDERS
OF THE MERGER?
A: We intend that the merger be treated as a
tax-free reorganization for federal income
tax purposes. ISCG shareholders should not
recognize gain or loss on the exchange of
their stock, other than taxes on cash
received for a fractional share. FCG
stockholders should not recognize any gain or
loss in connection with the merger. Tax
matters, however, are very complicated and
the tax consequences of the merger to you
will depend on the facts of your particular
situation. We encourage you to contact your
tax advisors to determine the tax
consequences of the merger to you. To review
the tax consequences to FCG and ISCG
stockholders in greater detail, see pages 56
to 58 of this Joint Proxy
Statement/Prospectus.
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SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FOUND IN GREATER DETAIL
ELSEWHERE IN THIS DOCUMENT. THIS SUMMARY DOES NOT CONTAIN ALL OF THE INFORMATION
THAT IS IMPORTANT TO YOU. WE URGE YOU TO READ THE ENTIRE DOCUMENT (INCLUDING THE
APPENDICES) AND THE DOCUMENTS INCORPORATED BY REFERENCE BEFORE YOU DECIDE HOW TO
VOTE.
THE COMPANIES
FIRST CONSULTING GROUP, INC.
111 W. Ocean Boulevard, 4th Floor
Long Beach, California 90802
(562) 624-5200
FCG is a leader in operation effectiveness and information management
services. FCG provides the following services to healthcare organizations in
North America and Europe:
- consulting
- software implementation
- network and application integration
- co-management
FCG designs its services to help its clients:
- improve their operation effectiveness
- reduce cost
- improve customer service
- enhance patient care
FCG was incorporated in California in October 1980 and reincorporated in
Delaware in February 1998. For more information, see "Information Relating to
FCG" beginning on page 74.
INTEGRATED SYSTEMS CONSULTING GROUP, INC.
575 East Swedesford Road
Wayne, Pennsylvania 19087
(610) 989-7000
ISCG is an information services consulting firm that provides the following
services to the pharmaceutical industry:
- software application development
- document management systems integration
- network integration
ISCG specializes in:
- client-server architecture
- document management-based applications
- web-based applications
- object-oriented and relational databases
- cross-platform systems integration
ISCG was incorporated in Pennsylvania in September 1988. For more
information on ISCG, see "Where You Can Find More Information" on Page 1.
FOXTROT ACQUISITION SUB, INC.
111 W. Ocean Boulevard, 4th Floor
Long Beach, California 90802
(562) 624-5200
Foxtrot Acquisition Sub, Inc. is referred to as "Merger Sub" in this
document. Merger Sub was incorporated in Delaware in July 1998 for the purpose
of effecting the merger and is a wholly-owned subsidiary of FCG.
OUR REASONS FOR THE MERGER
We believe that the merger will create a combined company capable of:
- responding quickly and effectively to emerging opportunities in
the healthcare industry
- offering a broader range and scope of services to the
pharmaceutical and biotechnology industries
- competing more effectively in providing services
The combined company may also offer a greater range of career opportunities
for employees, may improve employee retention, and may operate with reduced
general and administrative expenses.
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The FCG Board of Directors believes that the merger may result in a number
of benefits to FCG and its stockholders, including, among other benefits: (1)
increased service offerings and client base in the healthcare and pharmaceutical
industries and (2) strengthening FCG's application development capability in
client-server architecture, web-based applications, object oriented and
relational databases, and cross-platform systems integration.
The ISCG Board of Directors believes that the merger may result in a number
of benefits to ISCG and its shareholders, including, among other benefits: (1)
an increased ability to secure larger and more complex projects from its
customers as a result of the greater size of the combined company and (2) an the
ability to market its consulting services to its customers' more senior level
decision-makers.
To review the background and reasons for the merger in greater detail, as
well as the risks of the merger, see "Approval of the Merger and Related
Transactions-- Background of the Merger," "--Joint Reasons for the Merger,"
"--ISCG's Reasons for the Merger" and "--FCG's Reasons for the Merger,"
beginning on page 39 and "Risk Factors--Risks Relating to the Merger" beginning
on page 24.
The Stockholders' Meetings
The FCG Special Meeting will be held at FCG's offices located at 111 W.
Ocean Boulevard, 4th Floor, Long Beach, California on [ ], 1998 at
9:00 a.m. local time. At the meeting, FCG will ask its stockholders to approve
the issuance of shares of FCG Common Stock in the merger. FCG stockholders may
also consider and vote upon such other matters as may be properly brought before
the FCG Special Meeting.
The ISCG Special Meeting will be held at ISCG's offices located at 575 East
Swedesford Road, Wayne, Pennsylvania on [ ], 1998 at 9:00 a.m. local
time. At the meeting, ISCG will ask its shareholders to approve and adopt the
merger agreement and approve the merger. ISCG shareholders may also consider and
vote upon such other matters as may be properly brought before the ISCG Special
Meeting.
Record Date; Voting Power
You are entitled to vote at your stockholders' meeting if you own shares as
of the close of business on [ ], 1998. This date is referred to in
this document as the "Record Date."
At the close of business on the Record Date, [ ] shares of FCG Common
Stock were outstanding and entitled to vote at the FCG Special Meeting. You will
have one vote at the FCG Special Meeting for each share of FCG Common Stock you
own as of the Record Date.
At the close of business on the Record Date, [ ] shares of ISCG
Common Stock were outstanding and entitled to vote at the ISCG Special Meeting.
You will have one vote at the ISCG Special Meeting for each share of ISCG Common
Stock you own as of the Record Date.
Our Recommendation to Our Stockholders
TO THE FCG STOCKHOLDERS:
The FCG Board of Directors believes that the merger is fair to, and is in
the best interests of, both you and FCG. The FCG Board of Directors unanimously
recommends that you vote "for" the proposal to approve the issuance of shares of
FCG Common Stock in the merger.
TO THE ISCG SHAREHOLDERS:
The ISCG Board of Directors believes that the merger is fair to, and is in
the best interests of, both you and ISCG. The ISCG Board of Directors
unanimously recommends that you vote "for" the proposal to approve and adopt the
merger agreement and approve the merger.
Vote Required
A majority of shares of FCG Common Stock present in person or represented by
proxy and entitled to vote at the FCG Special Meeting must vote to approve the
proposal to issue shares of FCG Common Stock in the merger.
A majority of the shares of ISCG Common Stock present in person or
represented by proxy and entitled to vote at the ISCG Special Meeting must vote
to approve and adopt the merger agreement and approve the merger.
Voting Agreements
James A. Reep, Thomas A. Reep and Brent A. Hanson together beneficially
owned approximately [ ]% of the outstanding shares of FCG Common Stock on the
Record Date. These FCG stockholders have agreed that they will vote their shares
of FCG Common Stock in
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favor of: (1) the issuance of FCG Common Stock in connection with the merger;
and (2) each of the other actions contemplated by the merger agreement. These
stockholders have also delivered proxies with respect to such matters to ISCG
that cannot be revoked. Forms of the voting agreement that these FCG
stockholders signed and related irrevocable proxy are included as Appendix C-2
to this document. For more information on these voting agreements, see "Approval
of the Merger and Related Transactions--Voting Agreements" beginning on page 54.
David S. Lipson, Technology Leaders II, Safeguard Scientifics, Inc. and
Warrant and Stock Trust together beneficially owned approximately [ ]% of the
outstanding shares of ISCG Common Stock on the Record Date. These ISCG
shareholders have agreed that, subject to certain exceptions, they will vote
their shares of ISCG Common Stock in favor of: (1) approval and adoption of the
merger agreement; (2) approval of the merger; and (3) each of the other actions
contemplated by the merger agreement. These ISCG shareholders have also
delivered proxies with respect to such matters to FCG that cannot be revoked.
The affirmative vote of the shares of the ISCG Common Stock held by these ISCG
shareholders will be sufficient to approve and adopt the merger agreement and to
approve the merger. Forms of the voting agreement that these ISCG shareholders
signed and the related irrevocable proxy are included as Appendix C-1 to this
document. For more information on these voting agreements, see "Approval of the
Merger and Related Transactions--Voting Agreements" beginning on page 54.
Share Ownership of Management and
Certain Holders
As of the Record Date, the directors and executive officers of FCG, as a
group, beneficially owned approximately [ ] shares of FCG Common Stock.
James A. Reep, the Chairman of the Board of Directors, Thomas A. Reep, the Chief
Financial Officer, and Brent A. Hanson, Vice President, North American
Consulting Practice of FCG, who together hold approximately [ ]% of the FCG
Common Stock outstanding as of the Record Date, have entered into voting
agreements with ISCG. These stockholders have agreed to vote in favor of the
proposal and have granted ISCG an irrevocable proxy to vote their shares of FCG
Common Stock in favor of the proposal. For more information on these agreements,
see "Approval of the Merger and Related Transactions--Voting Agreements"
beginning on page 54.
As of the Record Date, the directors and executive officers of ISCG, as a
group, beneficially owned approximately [ ] shares of ISCG Common Stock.
Certain shareholders of ISCG, who together hold approximately [ ]% of the
ISCG Common Stock outstanding as of the Record Date, have entered into voting
agreements with FCG. These shareholders have agreed to vote in favor of the
proposal and have granted FCG an irrevocable proxy to vote their shares of ISCG
Common Stock in favor of the proposal. For more information on these agreements,
see "Approval of the Merger and Related Transactions--Voting Agreements"
beginning on page 54.
The Merger
THE MERGER AGREEMENT IS ATTACHED AS APPENDIX A TO THIS DOCUMENT. WE
ENCOURAGE YOU TO READ THE MERGER AGREEMENT. IT IS THE LEGAL DOCUMENT GOVERNING
THE MERGER.
When the Merger Will Occur
The merger will take place on a date agreed to by FCG and ISCG. This date
will be no later than the second business day after all of the conditions to
closing contained in the merger agreement have been satisfied or waived.
Assuming that our companies satisfy or waive all of the conditions in the merger
agreement, we anticipate that the merger will occur on or before [ ],
1998. For more information on regulatory matters and conditions of the merger,
see "Approval of the Merger and Related Transactions--Regulatory Matters"
beginning on page 58 and "The Reorganization Agreement-- Conditions to the
Merger" beginning on page 64.
What Shareholders Will Receive in the Merger
If the merger is approved, ISCG shareholders, other than those who properly
exercise dissenters' rights, will receive 0.77 of a share of FCG Common Stock
for each share of ISCG Common Stock they own prior to the merger. Similarly,
each option to purchase ISCG Common Stock will convert into an option to
purchase 77% as many shares in FCG Common
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<PAGE>
Stock at an adjusted exercise price. FCG will assume each ISCG option in
accordance with the terms of the stock option plan under which the option was
issued and the stock option agreement. Likewise, each outstanding warrant to
purchase ISCG Common Stock shall convert into a warrant to purchase 77% as many
shares in FCG Common Stock at an adjusted exercise price. FCG will assume each
warrant in accordance with its terms. For example, if you have an option or
warrant to purchase 100 shares of ISCG Common Stock at an exercise price of
$7.70, after the merger you will have an option or warrant to purchase 77 shares
of FCG Common Stock, at an exercise price of $10.00. The terms and conditions
that will apply to your new option or warrant will be substantially the same as
the terms and conditions that apply to your existing option or warrant. For more
information on stock options and warrants, see "The Reorganization
Agreement-Stock Options and Warrants" beginning on page 62.
Soon after the merger occurs, American Stock & Trust Company will mail to
the holders of ISCG Common Stock (1) a letter of transmittal with respect to the
surrender of valid certificates representing shares of ISCG Common Stock in
exchange for certificates representing FCG Common Stock and (2) instructions for
use of the letter of transmittal.
ISCG SHAREHOLDERS SHOULD NOT SURRENDER THEIR ISCG STOCK CERTIFICATES UNTIL
THEY RECEIVE A LETTER OF TRANSMITTAL. For more information on exchanging ISCG
shares, see "The Reorganization Agreement--Conversion of Shares; Procedures for
Exchange of Certificates" beginning on page 63.
Ownership of FCG Following the Merger
Based upon the number of shares of ISCG Common Stock issued and outstanding
on the Record Date (which excludes outstanding options, warrants or other rights
to purchase ISCG Common Stock), an aggregate of approximately [ ]shares
of FCG Common Stock will be issued in connection with the merger. Based upon the
number of shares of FCG Common Stock issued and outstanding on the Record Date
(which excludes outstanding options or other rights to purchase FCG Common
Stock), and the number of additional shares of FCG Common Stock that will be
issued in connection with the merger, the former holders of ISCG Common Stock
will hold approximately [ ]% of the total number of shares of FCG Common
Stock issued and outstanding after consummation of the merger.
Based on the number of outstanding options to purchase ISCG Common Stock as
of the Record Date, the total number of outstanding options to purchase ISCG
Common Stock will become rights to purchase an aggregate of [ ] shares of FCG
Common Stock in connection with the merger. Based on the number of outstanding
warrants to purchase ISCG Common Stock on the Record Date, the total number of
outstanding warrants to purchase ISCG Common Stock will become rights to
purchase an aggregate of [ ] shares of FCG Common Stock in connection with the
merger.
Material Federal Income Tax Consequences
We intend that the merger be treated as a tax-free reorganization for
federal income tax purposes. ISCG shareholders should not recognize gain or loss
in the merger (other than taxes on cash received for a fraction of a share which
will be subject to tax). The merger agreement does not require the parties to
obtain a ruling from the IRS as to the tax consequences of the merger. As a
condition to the closing of the merger, each of ISCG and FCG must receive
opinions from its legal counsel that, based on certain assumptions and
certifications, the merger will be treated as a tax-free reorganization for
federal income tax purposes. For more information, see "Approval of the Merger
and Related Transactions--Material Federal Income Tax Consequences" beginning on
page 56.
TAX MATTERS ARE VERY COMPLICATED. THE TAX CONSEQUENCES OF THE MERGER TO YOU
WILL DEPEND ON THE FACTS OF YOUR OWN SITUATION. WE URGE ISCG SHAREHOLDERS TO
CONSULT THEIR OWN TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES OF THE
MERGER, INCLUDING THE APPLICABLE FEDERAL, STATE, LOCAL AND FOREIGN TAX
CONSEQUENCES.
Opinions of Financial Advisors
In deciding to approve the merger, each Board of Directors considered the
opinion of its financial advisor. FCG received an opinion from its financial
advisor, Hambrecht & Quist LLC ("Hambrecht & Quist"), that the Exchange Ratio
was fair to FCG from a financial point of view. ISCG received an opinion from
its financial advisor, Robert W. Baird & Co. Incorporated ("Baird"), that the
Exchange Ratio was fair from a financial point of view, to the holders of ISCG
Common Stock (other than FCG and
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its affiliates). More information on these opinions is provided in the following
sections of this document: "Approval of the Merger and Related
Transactions--Opinion of Financial Advisor to FCG" beginning on page 50 and
"--Opinion of Financial Advisor to ISCG" beginning on page 45. These opinions
are attached as Appendices B-1 and B-2 to this document. We encourage you to
read these opinions carefully and in their entirety.
Interests of Certain Persons in the Merger
ISCG's shareholders should note that certain members of ISCG's management
and the ISCG Board of Directors have interests in the merger as employees and/or
directors that are different from, or in addition to, your interest as a
shareholder. If the merger is completed, certain indemnification arrangements
for persons serving as directors and officers of ISCG at the time of the merger
will be continued for at least six years after the merger is consummated. Also,
the combined company will maintain a policy of directors' and officers'
liability insurance for the benefit of those persons for three years after the
merger. In addition, FCG has agreed to use reasonable efforts to nominate and
appoint (1) Warren V. Musser, or another person designated by ISCG, to Class I
of the FCG Board of Directors to serve until the annual meeting of stockholders
to be held in 1999 and (2) David S. Lipson, or another person designated by
ISCG, to Class II of the FCG Board of Directors to serve until the annual
meeting of stockholders to be held in 2000. For more information, see "Approval
of the Merger and Related Transactions--Interests of Certain Persons in the
Merger" beginning on page 53.
Conditions to the Merger
FCG will complete the merger only if a number of conditions are either
satisfied or waived by FCG, some of which include:
- the representations and warranties of ISCG made in the merger
agreement (subject to certain materiality limitations) are
accurate
- ISCG performs certain covenants and obligations contained in the
merger agreement in all material respects
- the ISCG shareholders approve the merger agreement and merger
- the FCG stockholders approve the issuance of FCG Common Stock in
the merger
- holders of fewer than 10% of the outstanding shares of ISCG Common
Stock properly exercise their dissenters' rights
- the independent auditors of FCG and ISCG deliver letters stating
that the merger will qualify for pooling of interests accounting
treatment
- FCG receives certain other consents, certificates, letters and
legal opinions
- FCG receives written resignations of all officers and directors of
ISCG as of the consummation of the merger
- there is no material adverse change to the business, condition,
assets, liabilities, operations or financial performance of ISCG
or its subsidiaries
- the FCG Common Stock to be issued in the merger is authorized for
listing on Nasdaq
- there are no restraining orders, injunctions and other orders
preventing the consummation of the merger or other certain
litigation or administrative actions or proceedings
ISCG will complete the merger only if a number of conditions are satisfied
or waived by ISCG, some of which include:
- the representations and warranties of FCG made in the merger
agreement (subject to certain materiality limitations) are
accurate
- FCG performs certain covenants and obligations contained in the
merger agreement in all material respects
- the ISCG shareholders approve the merger agreement and merger
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- the FCG stockholders approve the issuance of FCG Common Stock in
the merger
- fewer than 10% of the outstanding shares of ISCG Common Stock
properly exercise their dissenters' rights
- ISCG receives the executed registration rights agreement
- the independent auditors of FCG and ISCG deliver letters stating
that the merger will qualify for pooling of interests accounting
treatment
- ISCG receives certain other consents, certificates, letters and
legal opinions
- there is no material adverse change to the business, condition,
assets, liabilities, operations or financial performance of FCG
- the FCG Common Stock to be issued in the merger is authorized for
listing on Nasdaq
- there are no restraining orders, injunctions and other orders
preventing the consummation of the merger or other certain
litigation or administrative actions or proceedings
For more information on the conditions to the merger, see "The
Reorganization Agreement--Conditions to the Merger."
Termination of the Reorganization Agreement
The Board of Directors of both companies can jointly agree to terminate the
merger agreement at any time without completing the merger. Either company can
terminate the merger agreement if:
1. we do not complete the merger by January 31, 1999;
2. a governmental authority or other legal action permanently prohibits the
merger;
3. the ISCG shareholders do not approve the merger or the FCG stockholders
do not approve the issuance of FCG Common Stock to ISCG shareholders in
the merger; or
4. the other party's representations and warranties shall be or have become
materially inaccurate or the other party breaches or materially fails to
comply with its obligations under the merger agreement, resulting in the
inability to satisfy a condition to the completion of the merger.
In addition, FCG can terminate the merger agreement if certain "Triggering
Events" (as defined in the merger agreement) occur at any time prior to the
adoption and approval of the merger agreement and approval of the merger by the
ISCG shareholders. For more information on the circumstances under which the
merger can be terminated, see "The Reorganization Agreement--Termination"
beginning on page 72.
Expenses and Termination Fees
We have agreed that we will each pay our own fees and expenses in connection
with the merger, whether or not the merger is consummated, except that we will
share equally all fees and expenses (other than attorneys' fees) in connection
with the printing and filing of this document and the registration statement of
which this document is a part. ISCG has agreed that if the merger agreement is
terminated under certain circumstances, it will pay to FCG a non-refundable fee
equal to $5,000,000. For more information, see "The Reorganization
Agreement--Expenses and Termination Fees" beginning on page 73.
Affiliate Agreements
ISCG has delivered to FCG executed affiliate agreements with certain
individuals who might be considered affiliates of ISCG under the securities
laws. These agreements restrict such individuals' ability to: (1) dispose of FCG
Common Stock received in the merger and (2) dispose of ISCG Common Stock held
prior to the consummation of the merger. The purpose of these agreements is to:
(1) comply with the requirements of certain federal securities laws and (2) help
ensure that the merger will be treated as a pooling of interests for accounting
and financial reporting purposes. A form of these affiliate agreements is
included as Appendix D-1 to this document. For more information on these
agreements, see "Approval of the Merger and Related Transactions--Affiliate
Agreements" and "--Resale of FCG Common Stock" beginning on page 54.
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FCG has delivered to ISCG executed affiliate agreements with certain
individuals who might be considered affiliates of FCG under the securities laws.
These agreements restrict such individuals' ability to dispose of FCG Common
Stock received in the merger to help ensure that the merger will be treated as a
pooling of interests for accounting and financial reporting purposes. A form of
these affiliate agreements is included as Appendix D-2 to this document. For
more information on these agreements, see "Approval of the Merger and Related
Transactions--Affiliate Agreements" and "--Resale of FCG Common Stock" beginning
on page 54.
Registration Rights Agreement
FCG has agreed to enter into a registration rights agreement, when the
merger is consummated, with David S. Lipson, Technology Leaders II, Safeguard
Scientifics, Inc. and the Warrant and Stock Trust. Under these agreements, these
persons or entities will have certain rights relating to the registration under
the Securities Act of the shares of FCG Common Stock they receive in the merger.
These rights include (1) the right to notification if FCG proposes to register
any of its securities under the Securities Act in an underwritten public
offering, and, subject to certain conditions and limitations, the right to
include their shares of stock in such registration, and (2) subject to certain
conditions and limitations, the right to require FCG to file a registration
statement under the Securities Act with respect to their shares of FCG Common
Stock. The form of the registration rights agreement is included as Appendix E
to this document. For more information on this agreement and these rights, see
"Approval of the Merger and Related Transactions--Registration Rights Agreement"
beginning on page 55.
Anticipated Accounting Treatment
We expect the merger will be accounted for as a pooling of interests, which
means that we will treat our companies as if they had always been combined for
accounting and financial reporting purposes. For more information, see "Approval
of the Merger and Related Transactions--Anticipated Accounting Treatment"
beginning on page 58.
Regulatory Approvals
We are not required to notify the Federal Trade Commission (FTC) or the
Antitrust Division of the United States Department of Justice before we can
complete the merger. However, the FTC or the Antitrust Division has the
authority to challenge the merger on antitrust grounds before or after the
merger is completed. For more information, see "Approval of the Merger and
Related Transactions--Regulatory Matters" beginning on page 58.
Rights of Dissenting Shareholders of ISCG
ISCG is organized under Pennsylvania law. ISCG shareholders who (1) notify
ISCG of their intent to exercise dissenters' rights, (2) effect no change in
their ownership in ISCG and (3) refrain from voting in favor of the merger will
be entitled to dissenters' rights in connection with the merger and receive the
fair value of their shares of ISCG Common Stock in cash. For a more detailed
description of the procedures ISCG shareholders must follow to properly exercise
their dissenters' rights, see "Approval of the Merger and Related
Transactions--Rights of Dissenting Shareholders of ISCG" beginning on page 57.
THE FULL TEXT OF THE REQUIREMENTS OF PENNSYLVANIA LAW TO EXERCISE DISSENTERS'
RIGHTS IS ATTACHED AS APPENDIX F TO THIS DOCUMENT AND SHOULD BE READ CAREFULLY
AND IN ITS ENTIRETY.
FCG is organized under Delaware law. Under Delaware law, FCG stockholders
are not entitled to appraisal rights in connection with the merger.
Forward-Looking Statements May Prove Inaccurate
We have each made forward-looking statement in this document (and in the
documents that are incorporated by reference) that are subject to risks and
uncertainties. Forward-looking statements include the information concerning
possible or assumed future results of operations of FCG, ISCG or the combined
company. Also, when we use such words as "believes," "expects," "anticipates" or
similar expressions, we are making forward-looking statements. You should note
that the merger and an investment in securities of FCG involve certain risks and
uncertainties that could affect the future financial results of FCG. Some of
these risks include: risks related to the integration of FCG and ISCG, risks
associated with a fixed Exchange Ratio, risks relating to the respective
businesses of FCG and ISCG and other risks and uncertainties discussed under
"Risk Factors" and elsewhere in this document and in the documents
9
<PAGE>
ISCG incorporated by reference. For more information on these risks, see "Risk
Factors" beginning on page 24.
Markets and Market Prices
FCG Common Stock is quoted on Nasdaq under the symbol "FCGI." ISCG Common
Stock is quoted on Nasdaq under the symbol "ISCG." Following the consummation of
the merger, ISCG Common Stock will cease to be quoted on Nasdaq.
The following table sets forth the closing sale price per share of FCG
Common Stock as reported on Nasdaq and the equivalent per share price (as
explained below) of ISCG Common Stock on September 9, 1998 the last trading day
before the announcement of the merger, and on October , 1998.
<TABLE>
<CAPTION>
FCG EQUIVALENT
COMMON ISCG
STOCK PER
PURCHASE SHARE
PRICE PRICE(1)
----------- -----------
<S> <C> <C>
September 9, 1998.............. $ 17.44 $ 13.43
October , 1998............... [ ] [ ]
</TABLE>
- ------------------------
(1) The equivalent ISCG per share price represents 0.77 (the Exchange Ratio) of
the price of one share of FCG Common Stock.
The actual prices of FCG or ISCG Common Stock prior to or at the time the
merger is consummated cannot be guaranteed or predicted. For more information on
this risk, see "Risk Factors--Risks Relating to the Merger-- Risks Associated
with Fixed Exchange Ratio" beginning on page 24.
10
<PAGE>
FIRST CONSULTING GROUP, INC.
SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
The following selected historical consolidated financial information of FCG
as of December 31, 1996 and 1997 and for each of the years ended December 31,
1995, 1996 and 1997, has been derived from and should be read in conjunction
with the audited consolidated financial statements of FCG and related notes
thereto included elsewhere in this Joint Proxy Statement/Prospectus. The
selected historical consolidated financial information of FCG as of December 31,
1993, 1994 and 1995 and for the years ended December 31, 1993 and December 31,
1994, have been derived from the audited consolidated financial statements of
FCG which are not included in this Joint Proxy Statement/Prospectus. The
selected financial information of FCG as of June 30, 1998 and for each of the
six-month periods ended June 30, 1997 and 1998 have been derived from and should
be read in conjunction with the unaudited consolidated financial statements
included elsewhere in this Joint Proxy Statement/Prospectus, which have been
prepared on the same basis as the audited consolidated financial statements and,
in the opinion of management, contain all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of FCG's financial
position and results of operations for and as of the end of such periods.
FCG'S SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------------------------------- --------------------
1993 1994 1995 1996 1997 1997 1998
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Net revenue............................... $ 19,050 $ 30,046 $ 47,744 $ 65,822 $ 91,570 $ 41,828 $ 60,386
Cost of services.......................... 10,721 16,869 26,518 40,718 53,526 24,725 33,386
--------- --------- --------- --------- --------- --------- ---------
Gross profit............................ 8,329 13,177 21,226 25,104 38,044 17,103 27,000
General and administrative expenses....... 6,995 9,871 17,517 23,670 31,669 14,156 20,737
Compensation expenses related to stock
issuances................................ -- -- 385 588 6,060 1,046 --
--------- --------- --------- --------- --------- --------- ---------
Income from operations.................. 1,334 3,306 3,324 846 315 1,901 6,263
Interest income (expense), net............ 46 (77) (36) 3 (68) (48) 797
Other income, net......................... 77 32 18 44 119 101 35
--------- --------- --------- --------- --------- --------- ---------
Income before income taxes.............. 1,457 3,261 3,306 893 366 1,954 7,095
Provision for income taxes................ 591 1,577 1,423 500 1,900 1,083 3,391
--------- --------- --------- --------- --------- --------- ---------
Net income (loss)....................... $ 866 $ 1,684 $ 1,883 $ 393 $ (1,534) $ 871 $ 3,704
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Basic net income (loss) per share......... $ 0.07 $ 0.19 $ 0.25 $ 0.05 $ (0.15) $ 0.09 $ 0.25
Diluted net income (loss) per share....... $ 0.07 $ 0.19 $ 0.25 $ 0.04 $ (0.15) $ 0.09 $ 0.24
Shares used in computing basic net income
per share................................ 11,735 8,831 7,515 8,671 9,987 9,554 14,671
Shares used in computing diluted net
income per share......................... 11,735 8,876 7,544 9,127 9,987 10,130 15,372
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
----------------------------------------------------- AS OF JUNE
1993 1994 1995 1996 1997 30, 1998
--------- --------- --------- --------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................. $ 1,675 $ 1,335 $ 2,075 $ 214 $ 2,950 $ 13,957
Total assets.......................................... 7,950 11,203 20,648 22,812 34,425 92,845
Long-term debt........................................ 643 1,550 3,362 2,692 262 177
Total stockholders' equity............................ 1,558 1,710 1,612 3,040 5,462 64,227
</TABLE>
11
<PAGE>
INTEGRATED SYSTEMS CONSULTING GROUP, INC.
SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
The following selected historical consolidated financial information of ISCG
as of December 31, 1996 and 1997 and for each of the years ended December 31,
1995, 1996 and 1997 has been derived from and should be read in conjunction with
the audited consolidated financial statements of ISCG and related notes thereto
incorporated by reference in this Joint Proxy Statement/Prospectus. The selected
historical consolidated financial information of ISCG as of December 31, 1993,
1994 and 1995 and for the years ended December 31, 1993 and December 31, 1994
have been derived from and should be read in conjunction with the audited
consolidated financial statements of ISCG not included or incorporated by
reference in this Joint Proxy Statement/Prospectus. The selected financial
information of ISCG as of June 30, 1998 and for each of the six-month periods
ended June 30, 1997 and 1998 have been derived from and should be read in
conjunction with the unaudited consolidated financial statements incorporated by
reference in this Joint Proxy Statement/Prospectus, which have been prepared on
the same basis as the audited consolidated financial statements and, in the
opinion of management, contain all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of ISCG's financial
position and results of operations for such periods.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------------------------------- --------------------
1993 1994 1995 1996 1997 1997 1998
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.................................. $ 9,461 $ 13,543 $ 21,024 $ 30,607 $ 43,178 $ 19,098 $ 29,673
Direct costs.............................. 5,632 8,111 12,559 17,497 25,402 11,116 17,967
--------- --------- --------- --------- --------- --------- ---------
Gross Profit............................ 3,829 5,432 8,465 13,110 17,776 7,982 11,706
Selling, general & administrative
Expenses................................ 2,495 3,259 5,187 8,194 12,233 5,796 8,114
--------- --------- --------- --------- --------- --------- ---------
Income from operations.................... 1,334 2,173 3,278 4,916 5,543 2,186 3,592
Interest income (expense), net............ 5 (85) (33) 354 418 229 161
--------- --------- --------- --------- --------- --------- ---------
Income before income taxes and cumulative
effect of acounting change.............. 1,339 2,088 3,245 5,270 5,961 2,415 3,753
Provision for income taxes................ 495 880 1,395 2,266 2,448 1,014 1,547
--------- --------- --------- --------- --------- --------- ---------
Income before cumulative effect of
accounting change....................... 844 1,208 1,850 3,004 3,513 1,401 2,206
Cumulative effect of accounting change.... 141 -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
Net income................................ $ 703 $ 1,208 $ 1,850 $ 3,004 $ 3,513 $ 1,401 $ 2,206
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
NET INCOME PER COMMON SHARE:
Income before cumulative effect of
accounting change..................... $ 0.09 $ 0.20 $ 0.36 $ 0.43 $ 0.44 $ 0.18 $ 0.28
Cumulative effect of accounting change.. $ (0.01) -- -- -- -- -- --
Net income per common share
Basic............................... $ 0.08 $ 0.20 $ 0.36 $ 0.43 $ 0.44 $ 0.18 $ 0.28
Diluted............................. $ 0.07 $ 0.17 $ 0.30 $ 0.37 $ 0.40 $ 0.16 $ 0.25
Shares used in computing net income per
common share:
Basic............................... 9,067 6,112 5,085 6,913 7,921 7,909 8,006
Diluted............................. 9,841 6,933 6,181 8,091 8,881 8,872 8,978
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF JUNE
----------------------------------------------------- 30,
1993 1994 1995 1996 1997 1998
--------- --------- --------- --------- --------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments.. $ 626 $ 757 $ 2,479 $ 11,267 $ 9,443 $ 5,110
Working capital.................................... 991 1,393 3,327 14,728 16,330 15,390
Total assets....................................... 2,814 4,205 7,586 20,844 23,898 27,241
Long-term debt..................................... 5 2,088 --
Total stockholders' equity......................... 1,401 291 4,846 17,760 21,357 23,763
</TABLE>
12
<PAGE>
FIRST CONSULTING GROUP, INC. AND INTEGRATED SYSTEMS CONSULTING GROUP, INC.
UNAUDITED SELECTED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
The unaudited selected pro forma combined condensed financial information
set forth below gives effect to the merger as a pooling of interests, assuming
that 0.77 of a share of FCG Common Stock is issued in exchange for each share of
ISCG Common Stock. The unaudited pro forma combined condensed statements of
operations for each of the years in the three-year period ended December 31,
1997 and for the six-month periods ended June 30, 1998 and 1997, combine the
historical consolidated statements of operations of FCG and ISCG as if the
merger had occurred at the beginning of the earliest period presented. The
unaudited pro forma combined condensed balance sheet as of June 30, 1998 gives
effect to the merger as if it had occurred on June 30, 1998, and combines the
historical unaudited consolidated balance sheet of FCG and the historical
unaudited consolidated balance sheet of ISCG as of such date. This data should
be read in conjunction with the selected historical consolidated financial
information, the unaudited pro forma combined condensed financial statements and
the separate historical consolidated financial statements of FCG and ISCG and
the notes thereto incorporated or included elsewhere in this Joint Proxy
Statement/Prospectus. The unaudited pro forma combined condensed financial
statements, presented for illustrative purposes only, are not necessarily
indicative of the operating results or financial position that would have been
achieved had the merger been consummated at the beginning of the earliest period
presented and should not be construed as representative of future operations.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------- --------------------
1995 1996 1997 1997 1998
--------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS DATA
(1):
Net revenue................................................. $ 68,768 $ 96,429 $ 134,748 $ 60,926 $ 90,059
Cost of services............................................ 39,077 58,215 78,928 35,841 51,353
--------- --------- --------- --------- ---------
Gross profit.............................................. 29,691 38,214 55,820 25,085 38,706
Selling, general and administrative expenses................ 22,704 31,864 43,902 19,952 28,851
Compensation expenses related to stock issuances............ 385 588 6,060 1,046 --
--------- --------- --------- --------- ---------
Income from operations.................................... 6,602 5,762 5,858 4,087 9,855
Interest income (expense), net.............................. (69) 357 350 181 958
Other income, net........................................... 18 44 119 101 35
--------- --------- --------- --------- ---------
Income before income taxes................................ 6,551 6,163 6,327 4,369 10,848
Provision for income taxes.................................. 2,818 2,766 4,348 2,097 4,938
--------- --------- --------- --------- ---------
Net income (loss)......................................... $ 3,733 $ 3,397 $ 1,979 $ 2,272 $ 5,910
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Net income per common share
Basic..................................................... $ 0.33 $ 0.24 $ 0.12 $ 0.15 $ 0.28
Diluted................................................... $ 0.30 $ 0.22 $ 0.11 $ 0.13 $ 0.27
Shares used in computing net income per common share:
Basic..................................................... 11,430 13,994 16,086 15,644 20,836
Diluted................................................... 12,303 15,357 17,324 16,961 22,285
</TABLE>
<TABLE>
<CAPTION>
AS OF
-------------
JUNE 30, 1998
-------------
(IN
THOUSANDS)
<S> <C> <C> <C> <C> <C>
PRO FORMA COMBINED CONDENSED BALANCE SHEET DATA:
Cash and cash equivalents............................... $ 19,067
Total assets............................................ 120,086
Long-term debt.......................................... 177
Total stockholders' equity (2).......................... 84,490
</TABLE>
- ------------------------------
(1) The unaudited selected pro forma combined condensed financial information
gives effect to the completion of the merger as if it had occurred on
January 1, 1995.
(2) Includes the effect of approximately $3.5 million in direct transaction
costs associated with the merger. Such transaction costs consist of
transaction fees for investment bankers, attorneys, accountants, financial
printing and other related charges.
13
<PAGE>
COMPARATIVE PER SHARE DATA (UNAUDITED)
The following table sets forth certain historical per share data of FCG and
ISCG and combined per share data on an unaudited pro forma basis after giving
effect to the merger as a pooling of interests at the Exchange Ratio. This data
should be read in conjunction with the selected historical consolidated
financial information and the unaudited selected pro forma combined condensed
financial information of FCG and ISCG and notes thereto, included elsewhere in
this Joint Proxy Statement/Prospectus. The unaudited pro forma combined per
share data are not necessarily indicative of the operating results or financial
position that would have occurred if the merger had been consummated at the
beginning of the periods presented, nor is it necessarily indicative of future
operating results or financial position.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED
JUNE 30,
------------------------------- ------------------------
1995 1996 1997 1997 1998
--------- --------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Historical FCG:
Net income (loss) per basic share.................................. $ 0.25 $ 0.05 $ (0.15) $ 0.09 $ 0.25
Net income (loss) per diluted share................................ $ 0.25 $ 0.04 $ (0.15) $ 0.09 $ 0.24
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED
JUNE 30,
------------------------------- ------------------------
1995 1996 1997 1997 1998
--------- --------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Historical ISCG:
Net income per basic share......................................... $ 0.36 $ 0.43 $ 0.44 $ 0.18 $ 0.28
Net income per diluted share....................................... $ 0.30 $ 0.37 $ 0.40 $ 0.16 $ 0.25
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED
JUNE 30,
------------------------------- ------------------------
1995 1996 1997 1997 1998
--------- --------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Pro Forma Combined Net Income (1):
Per FCG share--Basic............................................... $ 0.33 $ 0.24 $ 0.12 $ 0.15 $ 0.28
Per FCG share--Diluted............................................. $ 0.30 $ 0.22 $ 0.11 $ 0.13 $ 0.27
Equivalent per ISCG share--Basic (3)............................... $ 0.25 $ 0.18 $ 0.09 $ 0.12 $ 0.22
Equivalent per ISCG share--Diluted (3)............................. $ 0.23 $ 0.17 $ 0.08 $ 0.10 $ 0.21
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE
30, 1998
-----------
<S> <C>
Book value per share (2)
Historical FCG........................................................................................ $ 4.18
Historical ISCG....................................................................................... $ 2.65
Pro forma combined per FCG share (1)(3)............................................................... $ 3.79
Equivalent pro forma combined per ISCG share (1)(3)................................................... $ 2.92
</TABLE>
- --------------------------
(1) FCG and ISCG estimate they will incur direct transaction costs of
approximately $3.5 million associated with the merger, which will be charged
to operations upon consummation of the merger. The pro forma combined book
value per share data gives effect to the estimated direct transaction costs
as if such costs had been incurred as of the respective balance sheet date.
The pro forma combined book value per share data does not include additional
costs, which costs are not currently estimable, expected to be incurred
relating to integrating the companies. The direct transaction costs are not
included in the pro forma combined net income per share data. See "Unaudited
Pro Forma Combined Condensed Financial Statements" and accompanying notes
thereto.
(2) The historical book value per share is computed by dividing stockholders'
equity by the number of shares of Common Stock outstanding at the end of
each period. The pro forma combined book value per share is computed by
dividing pro forma stockholders' equity by the pro forma number of shares of
Common Stock outstanding as of June 30, 1998.
(3) The ISCG equivalent pro forma combined net income per share amounts are
calculated by multiplying the FCG combined pro forma net income per share
amounts by the Exchange Ratio of 0.77.
14
<PAGE>
FIRST CONSULTING GROUP, INC. AND INTEGRATED SYSTEMS CONSULTING GROUP, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
The following unaudited pro forma combined condensed financial statements
have been prepared to give effect to the merger, using the pooling of interests
method of accounting. These financial statements reflect certain assumptions
deemed probable by management regarding the merger (e.g., that share information
used in the unaudited pro forma information approximates actual share
information at the effective date). No adjustments to the unaudited pro forma
combined condensed financial statements have been made to account for different
possible results in connection with the foregoing, as management believes that
the impact on such information of varying outcomes, individually or in the
aggregate, would not be material.
The unaudited pro forma combined condensed balance sheet as of June 30, 1998
gives effect to the merger as if it had occurred on June 30, 1998, and combines
the historical unaudited consolidated balance sheet of FCG and the historical
unaudited consolidated balance sheet of ISCG as of such date.
The unaudited pro forma combined condensed statements of operations for each
of the years in the three-year period ended December 31, 1997 and for the
six-month period ended June 30, 1998, combine the historical consolidated
statements of operations of FCG and ISCG as if the merger had occurred at the
beginning of the earliest period presented.
FCG and ISCG estimate that they will incur direct transaction costs of
approximately $3.5 million associated with the merger, which will be charged to
operations upon consummation of the merger. In addition, it is expected that
following the merger, the combined company will incur additional costs, which
can not currently be estimated, associated with integrating the operations of
the two companies. Integration-related costs are not included in the
accompanying unaudited pro forma combined condensed financial statements.
Unaudited pro forma combined condensed financial information is presented
for illustrative purposes only and is not necessarily indicative of the
financial position or results of operations that would have actually been
reported had the merger occurred at the beginning of the earliest period
presented, nor is it necessarily indicative of future financial position or
results of operations. These unaudited pro forma combined condensed financial
statements are based upon the respective historical consolidated financial
statements of FCG and ISCG and notes thereto, included or incorporated by
reference elsewhere in this Joint Proxy Statement/Prospectus. These unaudited
pro forma combined condensed financial statements do not incorporate, nor do
they assume, any benefits from cost savings or synergies of operations of the
combined company.
15
<PAGE>
FIRST CONSULTING GROUP, INC. AND INTEGRATED SYSTEMS CONSULTING GROUP, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
JUNE 30, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
FCG ISCG ADJUSTMENTS COMBINED
--------- --------- ------------- -----------
<S> <C> <C> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents....................................... $ 13,957 $ 5,110 $ -- $ 19,067
Investments available for sale.................................. 9,928 -- -- 9,928
Accounts receivable, net........................................ 16,043 12,892 -- 28,935
Work in process................................................. 12,477 86 -- 12,563
Prepaid expenses................................................ 2,682 596 -- 3,278
Income taxes receivables........................................ 132 -- -- 132
Other current assets............................................ -- 184 -- 184
--------- --------- ------ -----------
Total current assets.......................................... 55,219 18,868 -- 74,087
--------- --------- ------ -----------
Notes receivable--stockholders.................................... 1,752 -- -- 1,752
Property and equipment, net....................................... 5,991 3,753 -- 9,744
Long term investments............................................. 25,722 -- -- 25,722
Goodwill, net..................................................... 294 4,521 -- 4,815
Other assets...................................................... 3,867 99 -- 3,966
--------- --------- ------ -----------
Total assets.................................................. $ 92,845 $ 27,241 $ -- $ 120,086
--------- --------- ------ -----------
--------- --------- ------ -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current portion of long-term debt............................... $ 445 $ -- $ -- $ 445
Accounts payable and accrued expenses........................... 13,079 2,843 -- 15,922
Accrued transaction costs....................................... -- -- 3,500 3,500
Current income tax liability.................................... 2,662 294 -- 2,956
Deferred revenue................................................ 527 -- -- 527
Customer advances............................................... 2,269 -- -- 2,269
Deferred income taxes........................................... 5,679 341 -- 6,020
--------- --------- ------ -----------
Total current liabilities..................................... 24,661 3,478 3,500 31,639
--------- --------- ------ -----------
Non-current liabilities
Long-term debt, net of current portion.......................... 177 -- -- 177
Supplemental executive retirement plan.......................... 3,333 -- -- 3,333
Deferred income taxes........................................... 447 -- -- 447
--------- --------- ------ -----------
Total liabilities............................................. 28,618 3,478 3,500 35,596
--------- --------- ------ -----------
Put obligation related to Associate 401(k) and Stock Ownership
Plan (ASOP) and capital stock................................... -- -- -- --
Stockholders' equity.............................................. -- -- -- --
Common Stock.................................................... 16 46 (41) 21
Additional paid-in capital...................................... 66,739 12,809 (546) 79,002
Retained earnings............................................... 7,918 11,495 (3,500) 15,913
Deferred compensation--stock incentive agreements............... (3,700) -- -- (3,700)
Unearned ASOP shares............................................ (853) -- -- (853)
Notes receivable--stockholders.................................. (5,871) -- -- (5,871)
Unrealized loss on investments.................................. (21) -- -- (21)
Loss on currency translation.................................... (1) -- -- (1)
Treasury stock.................................................. -- (587) 587 --
--------- --------- ------ -----------
Total stockholders' equity.................................... 64,227 23,763 (3,500) 84,490
--------- --------- ------ -----------
Total liabilities and stockholders' equity.................... $ 92,845 $ 27,241 $ -- $ 120,086
--------- --------- ------ -----------
--------- --------- ------ -----------
</TABLE>
See accompanying notes to unaudited pro forma combined financial statements.
16
<PAGE>
FIRST CONSULTING GROUP, INC. AND INTEGRATED SYSTEMS CONSULTING GROUP, INC.
UNAUDITED PRO FORMA
COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
FCG ISCG COMBINED
--------- --------- -----------
<S> <C> <C> <C>
Net revenue..................................................................... $ 47,744 $ 21,024 $ 68,768
Cost of services................................................................ 26,518 12,559 39,077
--------- --------- -----------
Gross profit.................................................................. 21,226 8,465 29,691
Selling, general and administrative expenses.................................... 17,517 5,187 22,704
Compensation expenses related to stock issuances................................ 385 -- 385
--------- --------- -----------
Income from operations........................................................ 3,324 3,278 6,602
Other income
Interest income (expense), net................................................ (36) (33) (69)
Other income, net............................................................. 18 -- 18
--------- --------- -----------
Income before income taxes.................................................. 3,306 3,245 6,551
Provision for income taxes...................................................... 1,423 1,395 2,818
--------- --------- -----------
Net income.................................................................... $ 1,883 $ 1,850 $ 3,733
--------- --------- -----------
--------- --------- -----------
Basic net income per share...................................................... $ 0.25 $ 0.36 $ 0.33
Diluted net income per share.................................................... $ 0.25 $ 0.30 $ 0.30
Shares used in computing basic net income per share............................. 7,515 5,085 11,430
Shares used in diluted net income per share..................................... 7,544 6,181 12,303
</TABLE>
See accompanying notes to unaudited pro forma combined financial statements.
17
<PAGE>
FIRST CONSULTING GROUP, INC. AND INTEGRATED SYSTEMS CONSULTING GROUP, INC.
UNAUDITED PRO FORMA
COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
FCG ISCG COMBINED
--------- --------- -----------
<S> <C> <C> <C>
Net revenue..................................................................... $ 65,822 $ 30,607 $ 96,429
Cost of services................................................................ 40,718 17,497 58,215
--------- --------- -----------
Gross profit.................................................................. 25,104 13,110 38,214
Selling, general and administrative expenses.................................... 23,670 8,194 31,864
Compensation expenses related to stock issuances................................ 588 -- 588
--------- --------- -----------
Income from operations........................................................ 846 4,916 5,762
Other income
Interest income, net.......................................................... 3 354 357
Other income, net............................................................. 44 -- 44
--------- --------- -----------
Income before income taxes.................................................. 893 5,270 6,163
Provision for income taxes...................................................... 500 2,266 2,766
--------- --------- -----------
Net income.................................................................... $ 393 $ 3,004 $ 3,397
--------- --------- -----------
--------- --------- -----------
Basic net income per share...................................................... $ 0.05 $ 0.43 $ 0.24
Diluted net income per share.................................................... $ 0.04 $ 0.37 $ 0.22
Shares used in computing basic net income per share............................. 8,671 6,913 13,994
Shares used in diluted net income per share..................................... 9,127 8,091 15,357
</TABLE>
See accompanying notes to unaudited pro forma combined financial statements.
18
<PAGE>
FIRST CONSULTING GROUP, INC. AND INTEGRATED SYSTEMS CONSULTING GROUP, INC.
UNAUDITED PRO FORMA
COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
FCG ISCG COMBINED
--------- --------- -----------
<S> <C> <C> <C>
Net revenue..................................................................... $ 91,570 $ 43,178 $ 134,748
Cost of services................................................................ 53,526 25,402 78,928
--------- --------- -----------
Gross profit.................................................................. 38,044 17,776 55,820
Selling, general and administrative expenses.................................... 31,669 12,233 43,902
Compensation expenses related to stock issuances................................ 6,060 -- 6,060
--------- --------- -----------
Income from operations........................................................ 315 5,543 5,858
Other income
Interest income (expense), net................................................ (68) 418 350
Other income, net............................................................. 119 -- 119
--------- --------- -----------
Income before income taxes.................................................. 366 5,961 6,327
Provision for income taxes...................................................... 1,900 2,448 4,348
--------- --------- -----------
Net income (loss)............................................................. $ (1,534) $ 3,513 $ 1,979
--------- --------- -----------
--------- --------- -----------
Basic net income (loss) per share............................................... $ (0.15) $ 0.44 $ 0.12
Diluted net income (loss) per share............................................. $ (0.15) $ 0.40 $ 0.11
Shares used in computing basic net income per share............................. 9,987 7,921 16,086
Shares used in diluted net income per share..................................... 9,987 8,881 17,324
</TABLE>
See accompanying notes to unaudited pro forma combined financial statements.
19
<PAGE>
FIRST CONSULTING GROUP, INC. AND INTEGRATED SYSTEMS CONSULTING GROUP, INC.
UNAUDITED PRO FORMA
COMBINED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
FCG ISCG COMBINED
--------- --------- -----------
<S> <C> <C> <C>
Net revenue..................................................................... $ 41,828 $ 19,098 $ 60,926
Cost of services................................................................ 24,725 11,116 35,841
--------- --------- -----------
Gross profit.................................................................. 17,103 7,982 25,085
--------- --------- -----------
Selling, general and administrative expenses.................................... 14,156 5,796 19,952
Compensation expenses related to stock issuances................................ 1,046 -- 1,046
--------- --------- -----------
Income from operations........................................................ 1,901 2,186 4,087
--------- --------- -----------
Other income
Interest income (expense), net................................................ (48) 229 181
Other income, net............................................................. 101 -- 101
--------- --------- -----------
Income before income taxes.................................................. 1,954 2,415 4,369
--------- --------- -----------
Provision for income taxes...................................................... 1,083 1,014 2,097
--------- --------- -----------
Net income.................................................................... $ 871 $ 1,401 $ 2,272
--------- --------- -----------
--------- --------- -----------
Basic net income per share...................................................... $ 0.09 $ 0.18 $ 0.15
Diluted net income per share.................................................... $ 0.09 $ 0.16 $ 0.13
Shares used in computing basic net income per share............................. 9,554 7,909 15,644
Shares used in diluted net income per share..................................... 10,130 8,872 16,961
</TABLE>
See accompanying notes to unaudited pro forma combined financial statements.
20
<PAGE>
FIRST CONSULTING GROUP, INC. AND INTEGRATED SYSTEMS CONSULTING GROUP, INC.
UNAUDITED PRO FORMA
COMBINED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
FCG ISCG COMBINED
--------- --------- -----------
<S> <C> <C> <C>
Net revenue..................................................................... $ 60,386 $ 29,673 $ 90,059
Cost of services................................................................ 33,386 17,967 51,353
--------- --------- -----------
Gross profit.................................................................. 27,000 11,706 38,706
Selling, general and administrative expenses.................................... 20,737 8,114 28,851
--------- --------- -----------
Income from operations........................................................ 6,263 3,592 9,855
Other income
Interest income, net.......................................................... 797 161 958
Other income, net............................................................. 35 -- 35
--------- --------- -----------
Income before income taxes.................................................. 7,095 3,753 10,848
Provision for income taxes...................................................... 3,391 1,547 4,938
--------- --------- -----------
Net income.................................................................... $ 3,704 $ 2,206 $ 5,910
--------- --------- -----------
--------- --------- -----------
Basic net income per share...................................................... $ 0.25 $ 0.28 $ 0.28
Diluted net income per share.................................................... $ 0.24 $ 0.25 $ 0.27
Shares used in computing basic net income per share............................. 14,671 8,006 20,836
Shares used in diluted net income per share..................................... 15,372 8,978 22,285
</TABLE>
See accompanying notes to unaudited pro forma combined financial statements.
21
<PAGE>
FIRST CONSULTING GROUP, INC. AND INTEGRATED SYSTEMS CONSULTING GROUP, INC.
NOTES TO UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL STATEMENTS
NOTE 1--PERIODS COMBINED
The FCG consolidated balance sheet as of June 30, 1998 has been combined
with the ISCG consolidated balance sheet as of June 30, 1998. The FCG
consolidated statements of operations for the six months ended June 30, 1998 and
1997 and for the years ended December 31, 1997, 1996 and 1995 have been combined
with the ISCG consolidated statements of operations for the six months ended
June 30, 1998 and 1997, and for the years ended December 31, 1997, 1996, and
1995 respectively.
NOTE 2--MERGER COSTS
FCG and ISCG estimate they will incur direct transaction costs of
approximately $3.5 million associated with the merger, consisting primarily of
fees for investment banking, filings with regulatory agencies, legal,
accounting, financial printing and other related costs. These nonrecurring costs
will be charged to operations in the fiscal quarter in which the merger is
consummated. The unaudited pro forma combined balance sheet gives effect to such
charges as if they had been incurred as of June 30, 1998, but the effects of
these costs have not been reflected in the unaudited pro forma combined
statements of operations as they are nonrecurring in nature. It is expected that
substantially all of the costs will be paid out of existing cash reserves within
six to twelve months after the consummation of the merger.
NOTE 3--PRO FORMA NET INCOME PER SHARE
The unaudited pro forma combined net income per common and equivalent share
is based upon the weighted average number of common and equivalent shares of FCG
and ISCG outstanding for each period at the Exchange Ratio.
NOTE 4--PRO FORMA NET INCOME (LOSS) PER SHARE
The following table reconciles the number of shares used in the pro forma
earnings per share computations to the numbers set forth in FCG's and ISCG's
historical statements of operations (in thousands, except the Exchange Ratio and
per share amounts):
22
<PAGE>
NOTE 4--PRO FORMA NET INCOME (LOSS) PER SHARE (CONTINUED)
PRO FORMA NET INCOME (LOSS) PER SHARE
(IN THOUSANDS, EXCEPT RATIOS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
YEARS ENDED DECEMBER 31, 30,
------------------------------- ------------------------
1995 1996 1997 1997 1998
--------- --------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Shares used in basic per share computation:
Historical ISCG.......................................... 5,085 6,913 7,921 7,909 8,006
Exchange Ratio........................................... 0.77 0.77 0.77 0.77 0.77
--------- --------- --------- ----------- -----------
3,915 5,323 6,099 6,090 6,165
Historical FCG........................................... 7,515 8,671 9,987 9,554 14,671
--------- --------- --------- ----------- -----------
Pro forma combined....................................... 11,430 13,994 16,086 15,644 20,836
--------- --------- --------- ----------- -----------
--------- --------- --------- ----------- -----------
Shares used in diluted per share computation:
Historical ISCG.......................................... 6,181 8,091 8,881 8,872 8,978
Exchange Ratio........................................... 0.77 0.77 0.77 0.77 0.77
--------- --------- --------- ----------- -----------
4,759 6,230 6,838 6,831 6,913
Historical FCG........................................... 7,544 9,127 9,987 10,130 15,372
--------- --------- --------- ----------- -----------
Add back of dilutive shares previously not included as
anti-dilutive due to loss.............................. -- -- 499 -- --
--------- --------- --------- ----------- -----------
Pro forma combined....................................... 12,303 15,357 17,324 16,961 22,285
--------- --------- --------- ----------- -----------
--------- --------- --------- ----------- -----------
</TABLE>
23
<PAGE>
RISK FACTORS
THIS JOINT PROXY STATEMENT/PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS
THAT INVOLVE KNOWN AND UNKNOWN RISKS AND UNCERTAINTIES. THE ACTUAL RESULTS OF
THE COMBINED COMPANY MAY DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE
FORWARD-LOOKING STATEMENTS. YOU SHOULD CAREFULLY CONSIDER THE RISKS DESCRIBED
BELOW, ELSEWHERE IN THIS DOCUMENT, AND IN THE DOCUMENTS INCORPORATED HEREIN BY
REFERENCE IN MAKING AN INVESTMENT DECISION. KEEP IN MIND THAT THE RISKS
DESCRIBED BELOW ARE NOT THE ONLY RISKS FACING FCG, ISCG OR THE COMBINED COMPANY.
RISKS RELATING TO THE MERGER
INTEGRATION RISKS. Integrating FCG and ISCG will be a complex,
time-consuming and expensive process. Before the merger, FCG and ISCG operated
independently, each with its own business, business culture, clients, employees
and systems. After the merger, FCG and ISCG must operate as a combined
organization utilizing common (1) information and communication systems, (2)
operating procedures, (3) financial controls and (4) human resource practices,
including benefit, training and professional development programs. There may be
substantial difficulties, costs and delays involved in integrating FCG and ISCG.
These may include:
- Distracting management from the business of the combined company
- Potential incompatibility of business cultures
- Perceived adverse change in client service standards, business focus,
billing practices, or service offerings available to clients
- Perceived uncertainty in career opportunities, benefits and the long-term
value of stock options available to employees
- Costs and delays in implementing common systems and procedures
- Potential inefficiencies in delivering services to the clients of the
combined company
- Potential inability to obtain consents of third parties required because
of the merger
Any one or all of these factors may cause increased operating costs, lower
than anticipated financial performance or the loss of clients and employees.
Many of these factors are also outside the control of either company. The
failure to the integrate FCG and ISCG would have a material adverse effect on
the business, financial condition and results of operations of the combined
company.
RISKS ASSOCIATED WITH FIXED EXCHANGE RATIO. At the effective time of the
merger, each outstanding share of ISCG Common Stock will be converted into a
fixed number of shares of FCG Common Stock. The number of shares of FCG Common
Stock received in the merger will not increase or decrease due to fluctuations
in the market price of either company's stock. Recent market prices of FCG
Common Stock and ISCG Common Stock are set forth under the captions
"Summary--Markets and Market Prices" beginning on page 10 and "Comparative Per
Share Market Price Data and Dividend Policy" beginning on page 38. We encourage
ISCG shareholders to obtain current market quotations for FCG Common Stock and
ISCG Common Stock. FCG Common Stock and ISCG Common Stock have been subject to
price volatility. The market prices of FCG Common Stock and ISCG Common Stock
cannot be guaranteed or predicted. For more information, see "Comparative Per
Share Market Price Data and Dividend Policy" beginning on page 38.
RIGHTS OF HOLDERS OF ISCG COMMON STOCK FOLLOWING THE MERGER. Following the
Merger, ISCG shareholders will become FCG stockholders. There are important
differences between the rights of shareholders of ISCG and the rights of
stockholders of FCG. For a description of these differences, see "Comparison of
Shareholders' Rights."
24
<PAGE>
RISKS RELATING TO THE BUSINESS OF FCG
POTENTIAL INABILITY TO ATTRACT AND RETAIN EMPLOYEES. FCG's business is
labor-intensive and requires highly skilled employees. Most of FCG's consultants
possess extensive expertise in healthcare, information technology and consulting
fields. To serve a growing client base, FCG must continue to recruit and retain
qualified personnel with expertise in each of these three fields. Competition
for such personnel is intense. FCG competes for such personnel with management
consulting firms, healthcare organizations, software firms and other businesses.
Many of these entities have substantially greater financial and other resources
than FCG. FCG may not be able to recruit and retain a sufficient number of
qualified personnel to serve existing and new clients. If FCG fails to to
recruit and retain a sufficient number of qualified personnel, FCG's ability to
expand its client base or services could be impaired and FCG's business,
financial condition and results of operations could be adversely effected.
RISKS OF EMPLOYEE TURNOVER. FCG has experienced employee turnover rates at
or above industry averages as a result of (1) dependence on lateral hiring of
consultants, (2) travel demands imposed on its consultants, and (3) loss of
employees to competitors and clients. Continued or increased employee turnover
could materially adversely effect FCG's business, financial condition and
results of operations. In addition, many of FCG's consultants develop strong
business relationships with FCG's clients. FCG depends on these relationships to
generate additional assignments and engagements. Losing one or more consultants
could erode FCG's client base and decrease FCG's revenue.
FLUCTUATIONS IN OPERATING RESULTS. FCG's net revenue and operating results
may fluctuate significantly because of a number of factors, many of which are
outside FCG's control. These factors may include:
- Losing key personnel and other employees
- Losing one or more significant clients
- Consummating an acquisition
- Costs of integrating acquired operations
- Timing and collection of payments and new client engagements
- Delays in securing and completing client engagements
- Fluctuations in market demand for FCG's services, consultant hiring and
utilization
- Variability in the number of billable days
- Availability of foreign net operating losses and other credits against
FCG's earnings
- Increased competition and pricing pressures
- Changes in business strategy, pricing and billing policies of FCG and its
competitors
- International currency fluctuations
A substantial portion of FCG's expenses, particularly personnel and related
costs, depreciation, office rent and occupancy costs, are relatively fixed. One
or more of the foregoing factors may cause FCG's operating expenses to be
disproportionately high during any given period. In addition, FCG bills certain
of its services on a fixed-price basis, and any assignment delays or
expenditures of time beyond that projected for the assignment could result in
write-offs of client billings. Significant write-offs could materially adversely
effect FCG's business, financial condition and results of operations. Based on
the preceding factors, FCG may experience a shortfall in revenue or earnings or
otherwise fail to meet public market expectations, which could materially
adversely effect FCG's business, financial condition and the market price of the
FCG Common Stock.
25
<PAGE>
VARIABILITY IN THE NUMBER OF BILLABLE DAYS. FCG's net revenue and operating
expenses vary depending on the number of billable days in any given quarter. FCG
typically has a lower number of billable days in the second and fourth quarters
of every year. In the second quarter of each year, FCG requires employee
attendance at an annual meeting of all of its employees. In the fourth quarter
of each year, FCG also encourages its employees to take vacation during the
December holidays. The number of billable days may also vary as a result of
vacation days, sick time, paid and unpaid leave and other holidays.
RISKS OF UNPREDICTABLE ENGAGEMENT CYCLES. The timing of client engagements
and service fulfillment is not predictable with any degree of accuracy. You
should not rely on prior engagement cycles as any indication of the timing of
future client engagements or revenues.
Prior to client engagements, FCG typically spends a substantial amount of
time and resources (1) identifying strategic or business issues facing the
client, (2) defining engagement objectives, (3) gathering information, (4)
preparing proposals and (5) negotiating contracts. FCG may be required to hire
new consultants before securing a client engagement. Clients may defer commiting
to new assignments for any length of time and for any reason. Such deferrals
could require FCG to maintain a significant number of under-utilized consultants
during any given period. In addition, failing to procure an engagement after
spending such time and resources could materially adversely effect FCG's
business, financial condition and results of operations.
The length of time required to complete an assignment often depends on
factors outside FCG's control, including:
- Existing information systems at the client site
- Changes or the anticipation of changes in the regulatory environment
affecting healthcare organizations
- Budgetary cycles and constraints
- Availability of personnel and other resources
- Consolidation in the healthcare industry
FCG may be unable to satisfy objectives and complete projects and services.
Any such failure may result in write-offs of client billings, reduction in
engagements or loss of clients. FCG's failure to deliver the services required
by the client on a timely basis or within anticipated budgets could materially
adversely affect FCG's business, financial condition and results of operations.
DEPENDENCE ON EXISTING CLIENTS. FCG's success depends on obtaining
additional engagements from its existing clients. A substantial portion of FCG's
revenues are derived from services provided to its existing clients. The loss of
a small number of clients may result in a material decline in revenues and cause
FCG to fail to meet public market expectations of its financial performance and
operating results. Any material failure on the part of FCG to generate
additional revenues from its existing clients may materially adversely effect
FCG's business, financial condition and results of operations.
POTENTIAL INABILITY TO MANAGE GROWTH. FCG's business has grown rapidly in
recent years. This growth has placed new and increased demands on FCG's vice
presidents and other management personnel. This growth has also placed
significant and increasing demands on FCG's financial, technical and operational
resources and on its information systems. To manage any future growth, FCG must
(1) extend its financial reporting and information management systems to a
growing number of offices and employees, and (2) develop and implement new
procedures and controls to accommodate new operations, services and clients.
Increasing operational and administrative demands may make it difficult for
FCG's vice presidents to engage in business development activities. Adding a
significant number of new employees and offices may also impair FCG's ability to
maintain its service delivery standards and corporate culture. In addition, FCG
has in the past changed, and may in the future change, its organizational
structure and business
26
<PAGE>
strategy. Such changes may result in operational inefficiencies and delays in
delivering FCG's services. Such changes could also cause a disruption in FCG's
business and could have a material adverse effect on FCG's business, financial
condition and results of operations. If FCG fails to effectively manage its
growth, FCG's business, financial condition and results of operations could be
adversely affected.
RISKS ASSOCIATED WITH ACQUISITIONS. FCG intends to grow, in part, by
acquiring complementary professional practices within the healthcare industry.
In 1998, FCG completed two acquisitions and is in the process of completing a
third acquisition. Integrating acquired operations is a complex, time-consuming
and expensive process. All acquisitions involve risks that could materially and
adversely effect FCG's business and operating results. These risks include (1)
distracting management from the business of FCG, (2) losing key personnel and
other employees, (3) losing clients, (4) costs, delays and inefficiencies
associated with integrating acquired operations and personnel, and (5)
amortizing the cost of acquired assets and goodwill. Acquired businesses may not
enhance FCG's services, provide FCG with increased client opportunities or
result in growth. Combining acquired operations with FCG may result in lower
overall operating margins, greater stock price volatility and quarterly earnings
fluctuations. Cultural incompatibilities, career uncertainties and other factors
associated with such acquisitions may result in the loss of employees and
clients. Failing to acquire and successfully integrate complementary practices
could materially adversely effect FCG's business, financial condition and
results of operations.
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS. FCG provides its services
to international clients. Expanding into international markets will require FCG
to (1) spend a significant amount of management, human and financial resources,
(2) hire additional personnel, and (3) establish international offices. FCG may
be unable to recruit and retain a sufficient number of qualified consultants in
each country in which it intends to conduct its business. If FCG fails to
recruit and retain qualified employees, FCG's ability to expand internationally
may be impaired and FCG's business, financial condition and results of
operations could be adversely effected. FCG's international operations are
subject to a variety of risks, including:
- Difficulties and costs of localizing services in international markets
- Unfavorable pricing and price competition
- Currency fluctuations
- Longer payment cycles in some countries
- Difficulties in collecting international accounts receivable
- Difficulties in enforcing contractual obligations and intellectual
property rights
- Adverse tax consequences
- Increased costs associated with maintaining international marketing
efforts and offices
- Adverse changes in regulatory requirements
- Economic instability
Any one or all of these factors may cause increased operating costs, lower
than anticipated financial performance and may materially adversely effect FCG's
business, financial condition and results of operations.
IMPACT OF YEAR 2000. Many existing computer programs and systems, including
those used by FCG's clients, use only two digits to identify the year in the
date field. These programs may be unable to process date/time information
between the twentieth and twenty-first centuries. This inability could cause the
disruption or failure of such computer systems (the "Y2K Problem"). Solving the
Y2K Problem will require a large amount of time and resources. FCG's clients may
have to reallocate a significant portion of their budgets away from FCG's
services to address this problem. Such reallocation would have a material
27
<PAGE>
adverse effect on FCG's business, financial condition and results of operations.
FCG's current time and billing systems are not Y2K compliant. FCG has purchased
an upgrade to these systems that will render them Y2K compliant. FCG expects to
complete deployment of this upgrade in the fourth quarter of 1998. There can be
no assurance that such deployment will begin as planned or, if begun, will be
completed in a timely and cost-effective manner.
DEPENDENCE ON KEY EMPLOYEES. FCG's performance depends on the continued
service of its senior management and certain other key employees. The loss of
the services of these employees could result in disruption of FCG's business,
stock price volatility and could have a material adverse effect on FCG's
business, financial condition and results of operations. FCG has not entered
into long-term employment contracts with any of its employees and does not
maintain key employee life insurance.
RISKS IN CLIENT ENGAGEMENTS. FCG's services often involve complex
information systems and software which are critical to the clients' operations.
FCG's failure to meet client expectations in the performance of its services may
damage FCG's reputation in the healthcare industry and adversely affect its
ability to attract and retain clients. If a client is not satisfied with FCG's
services, FCG will generally spend additional human and other resources at its
own expense to ensure client satisfaction. Such expenditures will typically
result in a lower margin on such engagements and could materially adversely
effect FCG's business, financial condition and results of operations.
In the course of providing its services, FCG will often recommend the use of
other software and hardware products. These products may not perform as expected
or contain defects. If this occurs, FCG's reputation could be damaged and it
could be subject to liability. FCG attempts to limit its exposure to potential
liability claims. Such limitations may not be effective. A successful liability
claim brought against FCG may adversely affect FCG's reputation in the
healthcare industry and could have a material adverse effect on FCG's business,
financial condition and results of operations. Although FCG maintains liability
insurance, such insurance may not provide adequate coverage for successful
claims against FCG.
COMPETITION IN THE HEALTHCARE INFORMATION SERVICES INDUSTRY. The market for
healthcare information technology consulting is very competitive. FCG has
competitors that provide some or all of the services provided by FCG. In
strategic consulting services, FCG competes with (1) international consulting
firms, (2) regional and specialty consulting firms and (3) the consulting groups
of international accounting firms such as KPMG Peat Marwick LLP, Ernst & Young
LLP, Deloitte & Touche LLP, PricewaterhouseCoopers, LLP and Andersen Consulting.
In implementation and integration services, FCG competes with (1) information
system vendors such as HBO & Company, Inc., Shared Medical Systems Corporation
and Integrated Systems Solution Corporation, a division of International
Business Machines Corporation; (2) service groups of computer equipment
companies; (3) systems integration companies such as Electronic Data Systems
Corporation, Perot Systems Corporation, CAP Gemini America, Inc. and Computer
Sciences Corporation; (4) clients' internal information management departments;
and (5) other healthcare consulting firms such as DAOU Systems Inc. and Superior
Consultant Holdings Corporation.
Many of FCG's competitors have significantly greater financial, human and
marketing resources than FCG. Such competitors may be able to respond more
quickly to new or emerging technologies and changes in customer demands, or to
devote greater resources to the development, promotion, sale and support of
their products and services than FCG. FCG may be unable to compete effectively
with current and future competitors. Competitive pressures may cause FCG's
revenue or operating margins to decline or otherwise materially adversely effect
its business, financial condition and results of operations.
RISKS OF REGULATORY AND TECHNOLOGICAL CHANGE. The healthcare industry is
subject to regulatory and technological changes that may affect the procurement
practices and operations of healthcare organizations. During the past several
years, the healthcare industry has been subject to an increase in governmental
regulation and reform proposals. These reforms could increase governmental
involvement in the
28
<PAGE>
healthcare industry, lower reimbursement rates or otherwise change the operating
environment of FCG's clients. Healthcare organizations may react to these
proposals by curtailing or deferring investments, including those for FCG's
services. FCG cannot predict with any certainty what impact, if any, such
legislative reforms could have on its business.
Technological change in the network and application markets has created high
demand for consulting, implementation and integration services. If the pace of
technological change were to diminish, FCG could experience a decrease in demand
for its services. Any material decrease in demand would materially adversely
effect FCG's business, financial condition and results of operations.
RISKS ASSOCIATED WITH CONSOLIDATION IN THE HEALTHCARE INDUSTRY. FCG derives
substantially all of its revenue from clients in the healthcare industry. As a
result, FCG's business, financial condition and results of operations are
influenced by conditions affecting this industry, particularly current trends
towards consolidation among healthcare organizations. Such consolidation may
reduce the number of existing and potential clients for FCG's services. In
addition, the resulting organizations could have greater bargaining power, which
could erode the current pricing structure for FCG's services. The reduction in
the size of FCG's target market or the failure of FCG to maintain its pricing
strategies could have a material adverse effect on FCG's business, financial
condition and results of operations.
LIMITED PROTECTION OF PROPRIETARY INFORMATION AND PROCEDURES. FCG must
protect its proprietary information, including its proprietary methodologies,
research, tools, software code and other information. To do this, FCG relies on
a combination of copyright and trade secret laws and confidentiality procedures
to protect its intellectual property. These steps may not protect FCG's
proprietary information. In addition, the laws of certain countries do not
protect or enforce proprietary rights to the same extent as do the laws of the
United States. FCG is currently providing its services to clients in
international markets. FCG's proprietary information may not be protected to the
same extent as provided under the laws of the United States, if at all. The
unauthorized use of FCG's intellectual property could have a material adverse
effect on FCG's business, financial condition or results of operations. In
addition, third parties may assert infringement claims against FCG in the
future. Such claims may result in protracted and costly litigation, regardless
of the merits of such claims.
CONTROL BY EXISTING STOCKHOLDERS AND MANAGEMENT. Upon consummation of the
Merger, FCG's existing stockholders will beneficially own approximately [ ]
shares, or [ ]%, of the outstanding shares of FCG Common Stock. As a result,
FCG's existing stockholders, if acting together, will be able to exercise
control over or significantly influence matters requiring stockholder approval,
including the election of directors, mergers, consolidations and sales of all or
substantially all of the assets of FCG.
ANTI-TAKEOVER EFFECTS OF DELAWARE LAW AND CERTAIN CHARTER
PROVISIONS. Certain provisions of Delaware law applicable to FCG could delay or
make more difficult a merger, tender offer or proxy contest involving FCG,
including Section 203 of the DGCL, which prohibits a Delaware corporation from
engaging in any business combination with any interested stockholder for a
period of three years from the date the person became an interested stockholder
unless certain conditions are met. In addition, the FCG Board of Directors may
issue shares of preferred stock without stockholder approval on such terms as
the FCG Board Directors may determine. The rights of the holders of FCG Common
Stock will be subject to, and may be adversely affected by, the rights of the
holders of any preferred stock that may be issued in the future. In addition,
the FCG Certificate of Incorporation and FCG Bylaws provide for a classified
board of directors, eliminate the right of stockholders to act by written
consent without a meeting, require advanced stockholder notice to nominate
directors and raise matters at the annual stockholders meeting, eliminate
cumulative voting in the election of directors and allow for the removal of
directors only for cause and with a two-thirds vote of FCG's outstanding shares.
All of the foregoing could have the effect of delaying, deferring or preventing
a change in control of FCG and could limit the price that certain investors
might be willing to pay in the future for shares of FCG Common Stock.
29
<PAGE>
RISKS RELATING TO THE BUSINESS OF ISCG
ISCG MAY NOT BE ABLE TO ATTRACT AND RETAIN A SUFFICIENT NUMBER OF TECHNICAL
EMPLOYEES TO MEET ITS WORK REQUIREMENTS.
ISCG's business of rendering professional services is labor-intensive. ISCG
believes its future success will depend in large part upon attracting, retaining
and motivating sufficient numbers of highly-skilled technical employees. There
are not enough information services professionals available to meet the current
demands of the computer consulting industry and ISCG believes that demand will
remain high for the foreseeable future. Therefore, in the future, ISCG might not
be able to attract and retain sufficient numbers of such highly-skilled
technical employees to meet its work requirements. The inability to attract new
technical employees or the departure of an unusually high number of ISCG's
technical employees would have a material adverse impact on ISCG's business.
ISCG'S REVENUES MAY DECREASE AS A RESULT OF CERTAIN CHANGES IN THE
PHARMACEUTICAL INDUSTRY.
Historically, a significant portion of ISCG's revenues has come from
companies in the pharmaceutical business. This trend may continue in the future.
The following chart shows the approximate percentage of total revenues ISCG
derived from the pharmaceutical industry during 1995, 1996, 1997 and 1998
(through September 30, 1998).
<TABLE>
<CAPTION>
1995 1996 1997 1998 (THROUGH SEPTEMBER 30, 1998)
----- ----- ----- -------------------------------------
<S> <C> <C> <C>
64% 59% 62% %
</TABLE>
ISCG's revenues are linked to the pharmaceutical industry's research and
development expenditures. Should any of the following events occur in the
pharmaceutical industry, ISCG's business could be negatively affected in a
material way:
- the industry's general economic environment changes adversely;
- companies continue to consolidate; or
- research and development expenditures or pharmaceutical companies'
expenditures on technology in general decrease.
A trend in the pharmaceutical industry is for companies to "outsource"
either large information technology-dependent projects or their information
systems staffing requirements. Outsourcing means that, rather than utilize its
own employees, a company contracts with a third party to undertake an entire
project or to provide technical personnel to augment their own staff. ISCG
benefits when pharmaceutical companies outsource to it. If this outsourcing
trend slows down or stops, ISCG's financial condition and results of operations
could be impacted in a materially adverse way.
30
<PAGE>
A FEW CLIENTS MAY ACCOUNT FOR A SIGNIFICANT PERCENTAGE OF ISCG'S REVENUES IN
ANY GIVEN YEAR AND ISCG'S BUSINESS COULD BE NEGATIVELY IMPACTED IF IT WERE
UNABLE TO SECURE ENGAGEMENTS FOR LARGE PROJECTS WITH SIGNIFICANT CLIENTS IN
A PARTICULAR YEAR.
A small number of clients each usually account for 10% or more of ISCG's
revenues in any given year. The following chart shows ISCG clients that
accounted for 10% or more of ISCG's revenues in 1995, 1996, 1997 and 1998
(though September 30, 1998).
<TABLE>
<S> <C> <C> <C> <C>
Percentage
of Revenues
Percentage Percentage Percentage in 1998
of Revenues of Revenues of Revenues (through
Client in 1995 in 1996 in 1997 9/30/98)
Air Products and Chemicals, Inc. 13% 10%
Merck & Company, Inc. 11% 10%
SmithKline Beecham Corp. 11% %
Pharmaceutical %
Research Institute
</TABLE>
ISCG's clients generally implement large software applications on an
irregular basis because such implementation is a complex, time-intensive and
costly process. Therefore, the amount of revenues derived by ISCG from a
specific client may vary significantly from year-to-year. Accordingly, ISCG
expects that the identity of clients accounting for large portions of its
revenues will change from year-to-year.
ISCG'S FINANCIAL CONDITION COULD BE ADVERSELY AFFECTED IF ITS TECHNICAL
EMPLOYEES ARE UNDER-UTILIZED OR IF ITS BILLING MARGINS DECREASE.
ISCG's revenues are derived largely from the hourly fees its clients pay for
the professional services rendered by ISCG's technical employees. The
"utilization rate" of ISCG's technical employees is defined as the number of
hours actually billed during any given period divided by the number of hours
available during that period. Utilization rates can vary based on a number of
factors, including (1) non-billable time between assignments that is incurred by
technical employees, (2) vacation hours taken by technical employees, (3)
weather events that prevent technical employees from reaching work sites, and
(4) training of technical employees. Since virtually all of ISCG's technical
employees are full time employees and their costs are relatively fixed,
variances in utilization rates affect both ISCG's revenues and operating
results.
In addition, the shortage of highly trained technical employees in the
industry has caused upward pressure on such employees' wages. ISCG's "billing
margin" is the difference between its cost of delivering consulting services
(which cost consists predominately of wages and related benefits) and the rates
ISCG charges its customers. A decrease in ISCG's billing margin would adversely
affect ISCG's financial performance. ISCG cannot guarantee that its billing
margin will not decrease in the future.
ISCG HAS GROWN RAPIDLY AND CONTINUES TO GROW RAPIDLY. IF ISCG FAILS TO
EFFECTIVELY MANAGE THIS GROWTH, ITS FINANCIAL RESULTS COULD SUFFER.
From January 1, 1992 through September 30, 1998, the size of ISCG's
professional staff increased from 61 to personnel. This growth has placed
increasing demands on ISCG's management, financial and other resources. ISCG has
built these resources and systems to account for such growth, but continued
growth may require ISCG to increase its investment in such systems, or to
reorganize its management team. Such changes, should they occur, could cause an
interruption or diversion of focus from ISCG's core business activities and have
an adverse effect on financial results.
31
<PAGE>
IF ISCG FAILS TO ESTABLISH AND MAINTAIN RELATIONSHIPS WITH VENDORS OF
SOFTWARE PRODUCTS, IT COULD HAVE A NEGATIVE EFFECT ON ISCG'S ABILITY TO
SECURE ENGAGEMENTS.
ISCG has established a non-exclusive partnership arrangement with
Documentum, Inc. ("Documentum"). Documentum markets document management software
applications largely to the pharmaceutical industry. ISCG believes that its
relationship with this vendor is important to its sales, marketing and support
activities. ISCG integrates Documentum's software products into clients'
systems. If a client or prospective client selects one of Documentum's products,
ISCG may be hired to integrate the product into the client's system. ISCG's
strong relationship with Documentum has often resulted in sales leads and client
engagements for ISCG. If ISCG fails to maintain its relationship with Documentum
or fails to establish relationships with other vendors, its business could be
materially adversely effected.
IF ISCG FAILS TO KEEP PACE WITH TECHNOLOGICAL DEVELOPMENTS IN THE
INFORMATION TECHNOLOGY INDUSTRY, IT COULD HAVE A MATERIAL ADVERSE EFFECT ON
ISCG'S BUSINESS.
The information technology industry has experienced and continues to
experience rapid technological advances and developments. To continue to succeed
in the future, ISCG must develop solutions that keep pace with continuing
changes in information processing technology, evolving industry standards and
changing client preferences. ISCG may not succeed in addressing these
developments on a timely basis. If ISCG delays or fails to address these
developments, ISCG's business could be materially negatively impacted. In
addition, technologies or methodologies developed by others could make ISCG's
services noncompetitive or obsolete.
IF ISCG DOES NOT EFFECTIVELY COMPETE, ITS BUSINESS WILL BE NEGATIVELY
IMPACTED.
ISCG competes in the commercial professional services segment of the
information technology industry. In this segment, many companies compete for
client assignments and for technical personnel. Many of the companies that ISCG
competes with or may compete with have significantly greater financial,
technical and marketing resources and have greater name recognition. ISCG
primarily seeks consulting, applications development and systems and networking
engagements with companies within the pharmaceutical industry. A number of other
professional services firms also seek these kinds of engagements. ISCG believes
that the following are the principal factors on which ISCG and companies
operating in the same industry segment compete:
- responsiveness to client needs;
- availability of technical personnel;
- speed of applications development;
- quality of service;
- price;
- project management capability;
- technical expertise; and
- the ability to market to and serve clients internationally.
ISCG believes that its ability to compete also depends in part on the
following factors that are outside of its control:
- the ability of its competitors to hire, retain and motivate qualified
technical personnel;
- the ownership by competitors of software used by potential clients;
- the development of software that would reduce or eliminate the need for
ISCG's services;
32
<PAGE>
- the price at which others offer comparable services; and
- the extent of its competitors' responsiveness to customer needs.
IF CERTAIN KEY EMPLOYEES OF ISCG LEAVE ISCG OR ARE NO LONGER ABLE TO PERFORM
SERVICES FOR ISCG, IT COULD HAVE A MATERIAL ADVERSE EFFECT ON ISCG'S
BUSINESS.
ISCG believes that the efforts and abilities of its senior management are
very important to its continued success. In particular, if David S. Lipson,
ISCG's Chairman, Chief Executive Officer and President, or certain of ISCG's
other executive officers or senior managers left ISCG or were unable to perform
services for ISCG, it could have a material negative impact on ISCG's business.
ISCG has employment agreements with each of its executive officers.
COMPUTER SYSTEMS USED BY OR DESIGNED BY ISCG OR USED BY THIRD PARTIES WITH
WHOM ISCG REGULARLY DEALS MAY NOT BE ABLE TO PROCESS DATE/TIME INFORMATION
BETWEEN THE TWENTIETH AND TWENTY-FIRST CENTURIES. THIS INABILITY COULD
CAUSE THE DISRUPTION OR FAILURE OF SUCH COMPUTER SYSTEMS. ISCG'S BUSINESS
COULD BE INTERRUPTED AND SUFFER A MATERIAL ADVERSE EFFECT AS A RESULT OF
SUCH DISRUPTION OR FAILURE.
Many existing computer programs and systems, including certain of those used
by ISCG for its own internal purposes and certain of those used by its clients,
suppliers, vendors and others, use only two digits to identify the year in the
date field. Some custom applications designed, built or modified by ISCG for its
clients may also only use two digits to identify the year in the date field.
These programs were designed and developed without considering the impact of
their inability to process date/time information between the twentieth and
twenty-first centuries. This ability to process information is described in
"Risks Relating to the Business of FCG" as "Y2K." ISCG has identified four main
areas of its Y2K risk:
- ISCG's internal computer systems could be disrupted or fail, causing an
interruption or decrease in ISCG's ability to continue its operations;
- the computer systems of third parties with whom ISCG regularly deals,
including among others its clients, suppliers, vendors, utilities,
financial institutions, could be disrupted or fail, causing an
interruption or decrease in ISCG's ability to continue its operations;
- ISCG could be exposed to liabilities if certain of the custom applications
designed, built or modified by ISCG for its clients are disrupted or fail
and ISCG is obligated to fix those applications; and
- ISCG's revenue could decline if clients' resources are diverted from
ISCG's traditional work to fixing the Y2K problem.
ISCG is currently evaluating the nature and extent of the Y2K issues for its
internal systems. ISCG believes that, before December 31, 1999, its material
internal systems will be substantially able to process date/time information
between the twentieth and twenty-first centuries. If ISCG does not achieve Y2K
compliance for its internal systems on a timely basis, ISCG's business could
suffer a material adverse impact.
If the business of any third party with whom ISCG regularly deals, including
among others its clients, suppliers, vendors, utilities, financial institutions,
is significantly disrupted because such party is not Y2K compliant, it could
have a material adverse effect on ISCG's business. These disruptions could
include, among other things:
- a client's inability to process payments to ISCG;
- a financial institution's inability to process checks drawn on ISCG's bank
accounts, accept deposits or process wire transfers;
- a client's, supplier's, vendor's or financial institution's business
failure;
33
<PAGE>
- an interruption in deliveries of computer equipment and other supplies
from vendors;
- a loss of voice and data connections ISCG uses to share information;
- a loss of electric power to ISCG's facilities; and
- other interruptions to the normal conduct of business by ISCG, the nature
and extent of which ISCG cannot foresee.
ISCG does not know whether any of the disruptions described above will
actually occur, or if they do occur, the effect they will have on ISCG.
ISCG is currently evaluating the extent to which applications that ISCG has
built, designed or modified for its clients may not be able to process date/time
information between the twentieth and twenty-first centuries. ISCG is also
considering its obligations, if any, to make these applications Y2K compliant.
ISCG's Y2K analyses may not be completed on a timely basis and the costs and
liabilities associated with the Y2K issue may materially adversely impact ISCG's
business.
ISCG'S QUARTERLY RESULTS MAY VARY AS A RESULT OF UNDER-UTILIZATION OF
TECHNICAL EMPLOYEES AND/OR THE TIMING OF CERTAIN GENERAL AND ADMINISTRATIVE
SPENDING.
ISCG's business is generally not seasonal. However, since its
employee-related costs are relatively fixed and revenues fluctuate,
profitability may vary from one quarter to another. The following factors
contribute to such variations:
- changes in employee utilization rates;
- the timing of certain general and administrative expenses;
- the timing of new hires,
- the timing of training for new and existing technical employees; and
- the number of business days in a particular quarter.
These factors could impact ISCG's future quarterly results. Therefore, the
future amount or pattern of ISCG's quarterly results will not necessary be the
same as its historical amount or pattern of quarterly results.
34
<PAGE>
THE FCG SPECIAL MEETING
PURPOSE OF THE FCG SPECIAL MEETING
The purpose of the FCG Special Meeting is to consider and vote upon a
proposal to approve the issuance of the FCG Common Stock in connection with the
proposed merger of Foxtrot Acquisition Sub, Inc. with and into Integrated
Systems Consulting Group, Inc., (the "Merger") as described in the Agreement and
Plan of Merger and Reorganization, dated as of September 9, 1998 (the
"Reorganization Agreement"). FCG Common Stockholders may also consider and vote
upon such other matters as may be properly brought before the FCG Special
Meeting or any postponements or adjournments thereof. The Merger will occur only
if the proposal is approved.
THE FCG BOARD OF DIRECTORS UNANIMOUSLY APPROVED THE REORGANIZATION AGREEMENT
AND THE MERGER, AND RECOMMENDS A VOTE FOR APPROVAL OF THE ISSUANCE OF SHARES OF
FCG COMMON STOCK PURSUANT TO THE REORGANIZATION AGREEMENT.
PROXIES
The FCG Proxy Card accompanying this Joint Proxy Statement/Prospectus is
being solicited on behalf of the FCG Board of Directors for use at the FCG
Special Meeting.
DATE, TIME AND PLACE OF MEETING
The FCG Special Meeting will be held at 111 W. Ocean Boulevard, 4th Floor,
Long Beach, California (the "FCG Principal Offices") on [ ], 1998 at
9:00 a.m. local time.
VOTING RIGHTS AND OUTSTANDING SHARES
Only holders of record of FCG Common Stock at the close of business on
[ ], 1998 (the "Record Date") will be entitled to notice of and to
vote at the FCG Special Meeting. At the close of business on the Record Date
there were [ ] shares of FCG Common Stock outstanding and entitled to vote.
Except for the stockholders identified herein under "Information Relating to
FCG--Security Ownership of Certain Beneficial Owners and Management of FCG," as
of the Record Date, to the knowledge of FCG, no other person beneficially owned
more than 5% of the outstanding FCG Common Stock.
Each holder of record of FCG Common Stock on the Record Date will be
entitled to one vote for each share held on all matters to be voted upon at the
FCG Special Meeting.
SOLICITATION
This Joint Proxy Statement/Prospectus was mailed to all FCG stockholders of
record as of the Record Date and constitutes notice of the FCG Special Meeting
in conformity with the requirements of the Delaware General Corporation Law
("DGCL").
Regardless of whether the Merger is consummated, each of FCG and ISCG will
pay its own costs and expenses incurred in connection with the Reorganization
Agreement and the transactions contemplated by the Reorganization Agreement,
except that fees and expenses (other than attorneys' fees) incurred in
connection with the printing and filing of the Registration Statement and this
Joint Proxy Statement/ Prospectus will be shared equally by FCG and ISCG. See
"The Reorganization Agreement--Expenses and Termination Fees."
Subject to the foregoing, the cost of the solicitation of proxies from
holders of FCG Common Stock and all related costs will be borne by FCG. In
addition, FCG may reimburse brokerage firms and other persons representing
beneficial owners of shares for their expenses in forwarding solicitation
materials to such beneficial owners. Original solicitation of proxies by mail
may be supplemented by telephone, telegram or personal solicitation by
directors, officers or other regular employees of FCG. No additional
compensation will be paid to directors, officers or other regular employees for
such services.
35
<PAGE>
VOTE REQUIRED
The presence, in person or by properly executed proxy, of the holders of a
majority of the outstanding shares of FCG Common Stock entitled to vote at the
FCG Special Meeting is necessary to constitute a quorum.
Approval of the proposal requires the affirmative vote of the holders of a
majority of the shares present in person or represented by proxy and entitled to
vote at the FCG Special Meeting. All votes will be tabulated by the inspector of
election appointed for the meeting, who will separately tabulate affirmative and
negative votes, abstentions and broker non-votes. Abstentions will be counted
towards the tabulation of votes cast on proposals presented to the stockholders
and will have the same effect as negative votes on each proposal. Broker
non-votes are counted towards a quorum, but are not counted for any purpose in
determining whether a matter has been approved.
Pursuant to certain voting agreements dated September 9, 1998 (each a "FCG
Voting Agreement" and, collectively, the "FCG Voting Agreements"), James A.
Reep, Thomas A. Reep and Brent A. Hanson (each a "FCG Voting Agreement
Stockholder" and, collectively, the "FCG Voting Agreement Stockholders") have
agreed that, prior to the earlier of the (i) Effective Time (as defined below)
or (ii) the termination of the Reorganization Agreement (the "Expiration Date"),
they will vote their shares of FCG Common Stock in favor of the issuance of FCG
Common Stock pursuant to the Merger and, in certain instances, to require any
party to whom shares of FCG Common Stock (or securities convertible into shares
of FCG Common Stock) held as of the date of the Reorganization Agreement or
acquired prior to the Expiration Date are sold, pledged, granted an option to
purchase, or otherwise transferred to execute a counterpart of the FCG Voting
Agreements. The "Effective Time" is the latest of (a) the filing of Articles of
Merger with the Secretary of State of the Commonwealth of Pennsylvania, (b) the
filing of a Certificate of Merger with the Secretary of State of the State of
Delaware and (c) such later time as may be specified in the Articles of Merger
or Certificate of Merger. See "Approval of the Merger and Related
Transactions--Voting Agreements."
REVOCABILITY OF PROXIES
Any person giving a proxy pursuant to this solicitation has the power to
revoke it at any time before it is voted. It may be revoked by filing with the
corporate secretary of FCG at FCG's Principal Offices, a written notice of
revocation or a duly executed proxy bearing a later date, or it may be revoked
by attending the meeting and voting in person. Attendance at the meeting will
not, by itself, revoke a proxy.
THE ISCG SPECIAL MEETING
PURPOSE OF THE ISCG SPECIAL MEETING
The purpose of the ISCG Special Meeting is to consider and vote upon the
approval and adoption of the Reorganization Agreement and approval of the
Merger. ISCG Common Stockholders may also consider and vote upon such other
matters as may be properly brought before the ISCG Special Meeting or any
postponements or adjournments thereof. The Merger will occur only if the
proposal is approved.
THE ISCG BOARD OF DIRECTORS UNANIMOUSLY APPROVED THE REORGANIZATION
AGREEMENT AND THE MERGER, AND RECOMMENDS A VOTE FOR ADOPTION AND APPROVAL OF THE
REORGANIZATION AGREEMENT AND FOR APPROVAL OF THE MERGER.
PROXIES
The ISCG Proxy accompanying this Joint Proxy Statement/Prospectus is being
solicited on behalf of the ISCG Board of Directors for use at the ISCG Special
Meeting.
DATE, TIME AND PLACE OF MEETING
The ISCG Special Meeting will be held at 575 East Swedesford Road, Wayne,
Pennsylvania (the "ISCG Principal Offices") on [ ], 1998 at 9:00 a.m.
local time.
36
<PAGE>
VOTING RIGHTS AND OUTSTANDING SHARES
Only holders of record of ISCG Common Stock at the close of business on the
Record Date will be entitled to notice of and to vote at the ISCG Special
Meeting. At the close of business on the Record Date there were [ ] shares
of ISCG Common Stock outstanding and entitled to vote. Except for the
shareholders identified herein under "Security Ownership of Certain Beneficial
Owners and Management of ISCG," as of the Record Date, to the knowledge of ISCG,
no other person beneficially owned more than 5% of the outstanding ISCG Common
Stock.
Each holder of record of ISCG Common Stock on the Record Date will be
entitled to one vote for each share held on all matters to be voted upon at the
ISCG Special Meeting.
SOLICITATION
This Joint Proxy Statement/Prospectus was mailed to all ISCG shareholders of
record as of the Record Date and constitutes notice of the ISCG Special Meeting
in conformity with the requirements of the PBCL.
Regardless of whether the Merger is consummated, each of FCG and ISCG will
pay its own costs and expenses incurred in connection with the Reorganization
Agreement and the transactions contemplated by the Reorganization Agreement,
except that fees and expenses (other than attorneys' fees) incurred in
connection with the printing and filing of the Registration Statement and this
Joint Proxy Statement/ Prospectus and will be shared equally by FCG and ISCG.
See "The Reorganization Agreement--Expenses and Termination Fees."
Subject to the foregoing, the cost of the solicitation of proxies from
holders of ISCG Common Stock and all related costs will be borne by ISCG. In
addition, ISCG may reimburse brokerage firms and other persons representing
beneficial owners of shares for their expenses in forwarding solicitation
materials to such beneficial owners. Original solicitation of proxies by mail
may be supplemented by telephone, telegram or personal solicitation by
directors, officers or other regular employees of ISCG. No additional
compensation will be paid to directors, officers or other regular employees for
such services.
VOTE REQUIRED
The presence, in person or by properly executed proxy, of the holders of a
majority of the outstanding shares of ISCG Common Stock entitled to vote at the
ISCG Special Meeting is necessary to constitute a quorum.
Approval of the proposal requires approval of a majority of the outstanding
shares of ISCG Common Stock as of the Record Date. All votes will be tabulated
by the inspector of election appointed for the meeting, who will separately
tabulate affirmative and negative votes, abstentions and broker non-votes.
Abstentions will be counted towards the tabulation of votes cast on the proposal
presented to the shareholders and will have the same effect as negative votes.
Broker non-votes are counted towards a quorum, but are not counted for any
purpose in determining whether the proposal has been approved.
Pursuant to certain voting agreements dated September 9, 1998 (each an "ISCG
Voting Agreement and collectively, the "ISCG Voting Agreements"), David S.
Lipson, David S. Lipson, Technology Leaders II, Safeguard Scientifics, Inc. and
Warrant and Stock Trust (each an "ISCG Voting Agreement Shareholder" and
collectively, the "ISCG Voting Agreement Shareholders") have agreed that, prior
to the Expiration Date, they will vote their shares of ISCG Common Stock in
favor of the adoption and approval of the Reorganization Agreement and the
approval of the Merger. The ISCG Voting Agreement Shareholders have also
delivered to FCG irrevocable proxies with respect to the matters covered by the
FCG Voting Agreements. In addition, subject to certain exceptions, the ISCG
Voting Agreement Shareholders have agreed not to sell, contract to sell, pledge,
grant any option to purchase or otherwise dispose of or transfer ("Transfer")
any of their shares of ISCG Common Stock (or securities convertible into ISCG
Common Stock) held as of the date of the Reorganization Agreement or acquired
prior to the Expiration Date unless and until the other party to the Transfer
shall have (i) executed a counterpart of the ISCG
37
<PAGE>
Voting Agreement and the corresponding irrevocable proxy and (ii) agreed to hold
such ISCG securities subject to all of the terms and provisions of the ISCG
Voting Agreement. See "Approval of the Merger and Related Transactions--Voting
Agreements."
REVOCABILITY OF PROXIES
Any person giving a proxy pursuant to this solicitation has the power to
revoke it at any time before it is voted. It may be revoked by filing with the
corporate secretary of ISCG at ISCG's Principal Offices, a written notice of
revocation or a duly executed proxy bearing a later date, or it may be revoked
by attending the meeting and voting in person. Attendance at the meeting will
not, by itself, revoke a proxy.
COMPARATIVE PER SHARE MARKET PRICE DATA AND DIVIDEND POLICY
Since February 13, 1998, FCG Common Stock has been quoted on Nasdaq under
the symbol "FCGI." Since April 18, 1996, the ISCG Common Stock has been quoted
on Nasdaq under the symbol "ISCG." The table below sets forth, for the quarters
indicated, the reported high and low sale prices of FCG Common Stock and ISCG
Common Stock as reported on the Nasdaq National Market ("Nasdaq").
<TABLE>
<CAPTION>
FCG ISCG
COMMON STOCK COMMON STOCK
-------------------- --------------------
HIGH LOW HIGH LOW
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
1996 CALENDAR YEAR
Second Quarter (for ISCG from April 18, 1996).............................. -- -- $ 30.00 $ 16.25
Third Quarter.............................................................. -- -- 21.50 13.25
Fourth Quarter............................................................. -- -- 20.75 11.50
1997 CALENDAR YEAR
First Quarter.............................................................. -- -- 14.50 7.63
Second Quarter............................................................. -- -- 12.75 8.25
Third Quarter.............................................................. -- -- 13.63 8.75
Fourth Quarter............................................................. -- -- 12.25 9.25
1998 CALENDAR YEAR
First Quarter (for FCG from February 13, 1998)............................. $ 20.88 $ 17.50 14.13 9.00
Second Quarter............................................................. 29.13 18.50 16.25 11.25
Third Quarter.............................................................. 29.00 13.88 14.63 9.13
Fourth Quarter (through October [ ], 1998)................................ [] [] [] []
</TABLE>
As of the Record Date, there were approximately [ ] record holders of
FCG Common Stock. As of the Record Date, there were approximately [ ]
record holders of ISCG Common Stock. Neither FCG nor ISCG has ever paid cash
dividends on their respective Common Stock. The policies of FCG and ISCG are to
retain earnings for use in their respective businesses.
The following table sets forth the closing sale price per share of FCG
Common Stock as reported on Nasdaq and the historical and equivalent per share
price (as explained below) of ISCG Common Stock on September 9, 1998, the last
trading day preceding the announcement of the Merger, and on October [ ], 1998:
<TABLE>
<CAPTION>
FCG EQUIVALENT
COMMON STOCK HISTORICAL ISCG ISCG
PURCHASE PRICE PER SHARE PRICE PER SHARE PRICE(1)
------------------- ------------------- ---------------------
<S> <C> <C> <C>
September 9, 1998................................ $ 17.44 $ 10.38 $ 13.43
October 8, 1998.................................. [] [] []
</TABLE>
- ------------------------
(1) The equivalent ISCG per share price represents 0.77 (the Exchange Ratio) of
the price of one share of FCG Common Stock.
FCG STOCKHOLDERS AND ISCG SHAREHOLDERS ARE URGED TO OBTAIN CURRENT MARKET
QUOTATIONS FOR FCG COMMON STOCK AND ISCG COMMON STOCK.
38
<PAGE>
APPROVAL OF THE MERGER AND RELATED TRANSACTIONS
BACKGROUND OF THE MERGER
Beginning in 1997, FCG's Board of Directors (the "FCG Board") evaluated
FCG's long-term strategy and decided to explore an expansion of its services and
client types in all sectors of the broad healthcare industry. The FCG Board
believed that the broad healthcare industry would continue to consolidate and
that various market sectors, such as the healthcare delivery, payor, government,
pharmaceutical and biotechnology sectors, would become closely related over
time. The FCG Board also believed that by hiring additional professionals and
acquiring complementary consulting firms it could expand its existing core
competencies in operations improvement and information management services.
During 1997, FCG assigned a team of senior level management personnel to conduct
a preliminary investigation of the viability of expanding FCG's services in the
pharmaceutical industry.
After completing its initial public offering in the first quarter of 1998,
FCG confirmed its strategic commitment to acquiring complementary consulting
firms to expand its services and client types in a series of meetings of the FCG
Board and FCG's Operating Committee and Vice President's Council. In particular,
FCG determined that it would be strategically important to expand its
application development and integration services and to establish a long-term
presence in the pharmaceutical industry. As a result of this commitment, FCG
contacted Hambrecht & Quist to identify potential acquisitions of consulting
firms in certain industry segments, including the pharmaceutical industry.
In May 1998, James A. Reep, Chairman and then CEO of FCG, was made aware of
ISCG. ISCG was brought to the attention of FCG by several parties, including
Hambrecht & Quist LLC ("Hambrecht & Quist").
In the spring of 1997, management of ISCG began to evaluate alternatives to
ISCG remaining as an independent company. Additionally, certain key shareholders
of ISCG suggested that ISCG evaluate strategic alternatives. In the summer of
1997, ISCG initiated a process to identify potential strategic partners.
Throughout the remainder of 1997 and early 1998, ISCG made contact with a number
of such potential partners both directly and through its financial advisors.
On April 7, 1998, at a meeting of the Executive Committee of the Board of
Directors of ISCG (the "ISCG Executive Committee") Robert W. Baird & Co.
Incorporated ("Baird") reviewed with the ISCG Executive Committee four written
indications of interest from potential partners, which did not include FCG.
After due analysis of each indication of interest, ISCG entered into a letter of
intent and " no shop" agreement with one such party on April 13, 1998 (the
"Prior Offer"). Shortly thereafter, ISCG and such third party initiated the
process of due diligence and negotiation of a definitive merger agreement.
During May of 1998, ISCG questioned whether the perceived cultural and economic
benefits from pursuing a potential transaction with this party would be
realized. In a series of communications with senior level management personnel
between the parties, Mr. Lipson expressed concern about these issues and certain
unresolved issues in the definitive merger agreement. The no-shop agreement with
such third party expired in late May.
At the end of May 1998, Mr. Reep placed telephone calls to certain members
of ISCG's management. Mr. Lipson, Chairman and CEO of ISCG, subsequently called
Mr. Reep and the two met in person in early June of 1998 to discuss the
convergence of the provider, health plan and pharmaceutical sectors and the
potential strategic, cultural and operational synergies between the two
companies. Messrs. Reep and Lipson and several other members of the senior level
management personnel at ISCG subsequently met in early June of 1998. The agenda
of this meeting included additional discussions of strategic issues facing each
firm. At the conclusion of such meeting, Messrs. Reep and Lipson concluded that
additional discussions and due diligence were warranted and that a combination
of FCG and ISCG might potentially be in the best interests of the stockholders
and employees of both companies. A mutual non-disclosure agreement was executed
on June 8, 1998.
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On June 11 and June 12, 1998, Luther J. Nussbaum, then Executive Vice
President of FCG, and Mr. Lipson met at the principal executive offices of ISCG.
Representatives of Hambrecht & Quist and Baird, the financial advisors to each
of FCG and ISCG, respectively, were also present at this meeting. Messrs.
Nussbaum and Lipson discussed the historical and prospective financial and
operational performance of each company and outlined the key terms of a
potential transaction. Messrs. Nussbaum and Lipson agreed that any transaction
would be subject to the successful completion of comprehensive due diligence and
execution of a definitive merger agreement.
On June 15, 1998, the FCG Board met for a regularly scheduled meeting.
During this meeting, certain management personnel, including Messrs. Reep and
Nussbaum, led a discussion regarding a potential acquisition of ISCG. During
this meeting the FCG Board approved the execution of a letter of intent for a
proposed merger of ISCG and FCG, and authorized and directed senior level
management personnel to continue discussions and negotiations with ISCG. The FCG
Board also directed such senior level management personnel to begin the due
diligence process as soon as practicable.
On June 15, 1998, the ISCG Executive Committee met to discuss a potential
transaction with FCG. On June 18, 1998, the ISCG Executive Committee approved
the execution of a letter of intent, including a 30-day "no shop" agreement, for
a proposed merger of ISCG and FCG. This letter of intent was executed on June
18, 1998.
On June 22, 1998, the ISCG Board of Directors held a special telephonic
meeting at which ISCG management updated the Board on the status of the
potential transaction with FCG.
Beginning on June 22 and continuing through June 26, 1998, representatives
of FCG, ISCG, Hambrecht & Quist, Baird, Grant Thornton LLP ("Grant Thornton"),
KPMG Peat Marwick LLP ("KPMG"), Cooley Godward LLP ("Cooley Godward") counsel to
FCG, and Saul Ewing Remick & Saul, LLP ("Saul Ewing"), counsel to ISCG, met at
the ISCG Principal Offices to conduct due diligence with respect to financial,
operational and legal matters of ISCG. During these meetings, numerous
interviews and discussions took place among senior level management personnel of
both firms.
On June 23, 1998, a draft of the definitive Reorganization Agreement was
delivered by Cooley Godward to Saul Ewing. Drafts of exhibits to the
Reorganization Agreement, including drafts of FCG and ISCG affiliate agreements,
FCG and ISCG voting agreements and the registration rights agreement, were
delivered to Saul Ewing on June 23 and June 24, 1998. A series of telephonic
conversations were held beginning on June 26, 1998 between representatives of
Saul Ewing and Cooley Godward to negotiate a definitive Reorganization Agreement
and related exhibits.
Beginning on June 29 and continuing through July 1, 1998, representatives of
FCG, ISCG, Hambrecht & Quist, Baird, Grant Thornton, KPMG, Cooley Godward, and
Saul Ewing met at the offices of Cooley Godward in Palo Alto, California to
conduct due diligence with respect to financial, operational and legal matters
of FCG. During this period, representatives of FCG, ISCG, Saul Ewing and Cooley
Godward met to continue negotiation of a definitive Reorganization Agreement and
related exhibits. At the conclusion of these meetings, certain issues relating
to the representation and warranty and termination provisions in the
Reorganization Agreement, including issues relating to the Prior Offer, and the
registration rights agreement remained unresolved.
On July 2, 1998, at a special meeting of the FCG Board, certain senior level
management personnel and representatives of Hambrecht & Quist and Cooley Godward
reviewed the terms of the proposed Merger and reported on the results of the due
diligence review of ISCG. In particular, Hambrecht & Quist made a presentation
regarding the financial terms of the proposed Merger. In addition, the terms of
the Reorganization Agreement and related exhibits were discussed in detail with
the FCG Board. After these discussions, Hambrecht & Quist rendered its oral
opinion that, as of such date, the Exchange Ratio was fair from a financial
point of view to FCG. The meeting was concluded with the expectation that the
FCG Board would meet again on July 6, 1998 to consider and vote on the proposed
Merger with ISCG. At the
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conclusion of these meetings, certain issues relating to the representation and
warranty and termination provisions in the Reorganization Agreement, including
issues relating to the Prior Offer, remained unresolved.
On July 2, 1998, at a meeting of the ISCG Board of Directors, certain senior
level management personnel and representatives of Baird and Saul Ewing reviewed
the terms of the proposed Merger and reported on the results of the due
diligence review of FCG. The ISCG Board of Directors evaluated the merits of the
transaction, including the proposed Exchange Ratio and the cultural
compatibility between FCG and ISCG.
On July 6, 1998, at a special meeting of the FCG Board, the FCG Board voted
unanimously: (1) subject to, among other things, the satisfactory completion of
the pre-acquisition review of ISCG by FCG's legal and financial advisors, the
delivery of Hambrecht & Quist's fairness opinion, and the resolution of the
aforementioned outstanding issues, to approve the proposed merger with ISCG, the
Reorganization Agreement and related exhibits as presented to them, and to
authorize and direct the officers of FCG to finalize the terms of the
Reorganization Agreement, and (2) to recommend that the FCG stockholders vote to
approve the issuance of FCG Common Stock in the merger. In particular, the FCG
Board noted that satisfactory resolution of the representation and warranty and
termination provisions in the Reorganization Agreement was critical to the
completion of the Merger.
On July 6, 1998, the ISCG Board of Directors met to consider the approval of
the proposed transaction with FCG. The ISCG Board of Directors considered, among
other things, the potential benefits of the proposed Merger, the risks of the
Merger and the results of the due diligence process. In addition, Baird made a
presentation regarding the financial terms of the proposed Merger and provided
the ISCG Board with a financial analysis with respect to such terms. In
addition, the terms of the Reorganization Agreement and related exhibits were
discussed in detail with the ISCG Board of Directors. The ISCG Board of
Directors approved the transaction subject to a resolution, satisfactory to the
Executive Committee of the Board of Directors, of the representation and
warranty and termination provisions in the Reorganization Agreement and the
delivery of Baird's fairness opinion.
From July 6 to July 8, 1998, the representatives of FCG and ISCG attempted
to resolve issues in the representation and warranty and termination provisions
in the Reorganization Agreement, including issues relating to the Prior Offer.
Failing to resolve these issues, on July 8, 1998, Mr. Reep, in a telephone call
with Mr. Lipson and in a subsequent written confirmation, terminated
negotiations between FCG and ISCG. On August 26, 1998, ISCG executed an
agreement (the "Release Agreement") that it believes resolved open issues
relating to the Prior Offer. The Release Agreement included a complete release
of claims between ISCG and such third party. ISCG expects to recognize expenses
in the amount of approximately $275,000 after tax in the third quarter of 1998
for due diligence, accounting, legal and other costs arising in connection with
the Prior Offer, including a payment made in connection with the Release
Agreement.
After the execution of the Release Agreement, in a series of telephone
conferences between senior level management personnel, FCG and ISCG decided to
resume negotiations. Beginning on September 1 and continuing through September
3, 1998, representatives of FCG, ISCG, Hambrecht & Quist, Baird, Grant Thornton
and KPMG met at the offices of Saul Ewing in Berwyn, Pennsylvania to update the
financial and operational due diligence from the previous review in June of
1998. Simultaneously, legal due diligence materials were exchanged among the
legal advisors to FCG and ISCG. Negotiations were held telephonically among the
legal advisors of FCG and ISCG from September 1 until September 9, 1998 to reach
final agreement on the terms of the definitive Reorganization Agreement.
The ISCG Board of Directors met on the morning of September 9, 1998, to
consider the definitive Reorganization Agreement. After due consideration,
including a detailed review of the Reorganization Agreement and Merger
evaluation of the oral opinion of Baird, subsequently confirmed in writing, that
the Exchange Ratio was fair, from a financial point of view, to the holders of
ISCG Common Stock (other than
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FCG and its affiliates), the ISCG Board of Directors unanimously approved the
Reorganization Agreement and the related exhibits. The ISCG Board of Directors
also voted unanimously in favor of recommending the approval of the
Reorganization Agreement and Merger to the ISCG Shareholders.
On September 9, 1998, in a special meeting of the FCG Board, certain senior
level management personnel and representatives of Hambrecht & Quist and Cooley
Godward reviewed the finalized terms of the proposed Merger and reported on the
results of the due diligence review of ISCG. In particular, Hambrecht & Quist
made a presentation regarding the analysis described under "Approval of the
Merger and Related Transactions--Opinion of Financial Advisor to FCG." In
addition, the terms of the Reorganization Agreement and related exhibits were
discussed in detail with the FCG Board. After these discussions, Hambrecht &
Quist rendered its oral opinion, subsequently confirmed in writing, that, as of
such date, the Exchange Ratio was fair from a financial point of view to FCG.
After such presentations and discussions, the FCG Board voted unanimously: (1)
to approve the proposed Merger with ISCG, the Reorganization Agreement and
related exhibits as presented to them; and (2) to recommend that the FCG
stockholders vote to approve the issuance of FCG Common Stock in the Merger.
Following the approval of the FCG Board of Directors and the ISCG Board of
Directors, the Reorganization Agreement in its definitive form was executed and
jointly announced in the evening of September 9, 1998.
JOINT REASONS FOR THE MERGER
The Boards of Directors of FCG and ISCG believe that the proposed Merger
will afford to each company the complementary strengths of the two individual
companies, will provide the Combined Company with several potential benefits and
may enable the combined company (the "Combined Company") to address emerging
strategic opportunities in the healthcare industry quickly and effectively.
The potential benefits to the Combined Company include the following:
- The combination of FCG's broad industry expertise, information technology
strategic planning skills and program management methods and ISCG's deep
information technology skills allows the Combined Company to offer a
broader range and scope of services to the pharmaceutical and
biotechnology industries.
- The combination of FCG's and ISCG's application development and
integration practices allows the Combined Company to compete more
effectively in the provision of these services to clients in the
healthcare industry.
- The combination of FCG's and ISCG's experience, financial resources,
consultants and service offerings allows the Combined Company to share
knowledge and client opportunities and, as a result, enable the Combined
Company to respond quickly and effectively to emerging opportunities in
the healthcare industry.
- The Combined Company may offer a greater range of career opportunities for
employees and may improve retention over time.
- The Combined Company would potentially be able to operate with a reduced
level of general and administrative expenses.
FCG and ISCG have each identified additional reasons for the Merger, as
discussed below. It should be noted, however, that the potential benefits of the
Merger may not be realized. See "Risk Factors."
ISCG'S REASONS FOR THE MERGER
During the spring of 1997, senior level management personnel of ISCG, at the
direction of the ISCG Board of Directors, decided that ISCG would seek a
strategic partner. Reasons for this decision included
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the need for ISCG to become a larger entity in a consolidating marketplace,
obtain additional technological and geographic presence to compete with national
and international competitors, and continue to provide additional challenging
positions necessary to recruit and retain skilled employees in a highly
competitive marketplace.
In addition to the anticipated joint benefits described above, the ISCG
Board of Directors believes that the following are additional reasons that the
Merger will be beneficial to ISCG:
- ISCG believes that the greater size of the Combined Company will enable it
to secure larger and more complex projects from its clients.
- The strategic consulting experience of FCG may offer ISCG the ability to
market its consulting services to more senior level decision-makers at its
customers.
- The merger may provide enhanced career opportunities for ISCG's employees.
In addition to the factors set forth above, in the course of its meetings
during June, July, August and September of 1998, the ISCG Board of Directors
reviewed and considered a wide variety of information relevant to the Merger
including: (i) information concerning FCG's and ISCG's respective businesses,
historical financial performance and conditions, operations, services, clients,
competitive positions, prospects and management; (ii) ISCG's management's view
as to the financial conditions results of operations and business and financial
potential of FCG and ISCG before and after giving effect to the Merger, based on
management's due diligence; (iii) current financial market conditions and
historical trading market prices, volatility and trading information with
respect to FCG Common Stock and ISCG Common Stock; (iv) the consideration to be
paid to the ISCG shareholders in the Merger and the relationship between the
market value of comparable merger transactions; (v) the belief that the terms of
the Reorganization Agreement, including the parties' representations, warranties
and covenants, and the conditions to their respective obligations, are
reasonable; (vi) reports from management, legal and financial advisors as to the
results of their due diligence investigation of FCG; (vii) the potential impact
of the Merger on clients and employees of FCG and ISCG; (viii) the likely
reaction to the Merger from the financial markets; and (ix) the financial
analysis and pro forma and other information with respect to the companies
presented by management and Baird in presentations to the ISCG Board of
Directors, as well as Baird's opinion to the effect that the Exchange Ratio was
fair, from a financial point of view, to the holders of ISCG Common Stock (other
than FCG and its affiliates). A copy of Baird's opinion is attached hereto as
Appendix B-1 and ISCG shareholders are urged to review it carefully and in its
entirety.
The ISCG Board of Directors also considered a number of potentially negative
factors in its deliberations concerning the Merger, including (i) the potential
disruption to the business of both companies following announcement of the
Merger, including the effects of employee uncertainty, the possibility that key
employees may leave FCG or ISCG, and the possibility that key clients may not
approve of the Merger or may determine to terminate their relationship with the
Combined Company; (ii) the dilutive effects of the issuance of shares in the
Merger and the higher level of expenses that will be borne by the Combined
Company; (iii) additional potential problems and costs associated with the
integration of both companies into a single enterprise; (iv) the possibility
that the Merger would not be consummated; and (v) the other risks described
under "Risk Factors" herein. After due consideration, the ISCG Board of
Directors concluded that the benefits of the transaction to ISCG and its
shareholders outweighed the risks associated with the foregoing factors.
The foregoing discussion of the factors considered by the ISCG Board of
Directors is not intended to be exhaustive but is intended to include
substantially all of the material facts considered by the ISCG Board of
Directors. In view of the complexity and variety of factors considered by the
ISCG Board of Directors, the ISCG Board of Directors did not consider it
practical to quantify or otherwise attempt to assign and relative or specific
weights to the specific factors considered, and individual directors may have
given differing weights to different factors.
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FCG'S REASONS FOR THE MERGER
At meetings convened on June 15, July 2, July 6 and September 9, 1998, the
FCG Board of Directors determined that the Reorganization Agreement and the
transactions contemplated thereby were in the best interests of FCG and its
stockholders, approved and adopted the Reorganization Agreement and the
transactions contemplated thereby, and unanimously recommended that the FCG
stockholders approve the issuance of FCG Common Stock in connection with the
Merger. In reaching the foregoing conclusions and recommendations, the FCG Board
of Directors considered a number of factors, including the following:
- The convergence of several sectors within the healthcare industry.
- The combination would enhance FCG's service offerings and increase FCG's
client base in the increasingly interrelated healthcare industry. FCG
believes that the healthcare industry may see increasing interaction among
genetic engineering, drug development, disease management, care management
in general and care delivery.
- The combination of FCG and ISCG would strengthen FCG's application
development capability in client-server architecture, web-based
applications, object-oriented and relational databases, and cross-platform
systems integration.
In addition to the factors set forth above, in the course of its meetings
during June, July, July and September of 1998 the FCG Board of Directors
reviewed and considered a wide variety of information relevant to the Merger
including: (i) information concerning FCG's and ISCG's respective businesses,
historical financial performance and conditions, operations, services, clients,
competitive positions, prospects and management; (ii) FCG's management's view as
to the financial condition, results of operations and business and financial
potential of FCG and ISCG before and after giving effect to the Merger, based on
management's due diligence; (iii) current financial market conditions and
historical trading market prices, volatility and trading information with
respect to FCG Common Stock and ISCG Common Stock; (iv) the consideration to be
paid to the ISCG shareholders in the Merger and the relationship between the
market value of comparable merger transactions; (v) the belief that the terms of
the Merger Agreement, including the parties' representations, warranties and
covenants, and the conditions to their respective obligations, are reasonable;
(vi) reports from management, legal and financial advisors as to the results of
their due diligence investigation of ISCG; (vii) the potential impact of the
Merger on clients and employees of FCG and ISCG; (viii) the likely reaction to
the Merger from the financial markets; and (ix) the financial analysis and pro
forma and other information with respect to the companies presented by
management and Hambrecht & Quist in presentations to the FCG Board of Directors,
as well as Hambrecht & Quist's opinion that, as of September 9, 1998, the
Exchange Ratio was fair from a financial point of view to FCG (a copy of which
opinion is attached hereto as Appendix B-2 and which opinion stockholders are
urged to review carefully and in its entirety).
The FCG Board of Directors also considered a number of potentially negative
factors in its deliberations concerning the Merger, including (i) the potential
disruption to the business of both companies following announcement of the
Merger, including the effects of employee uncertainty, the possibility that key
employees may leave FCG of ISCG, and the possibility that key clients may not
approve of the Merger or may determine to terminate their relationship with the
Combined Company; (ii) the dilutive effects of the issuance of shares in the
Merger and the higher level of expenses that will be borne by the Combined
Company; (iii) additional potential problems and costs associated with the
integration of both companies into a single enterprise; (iv) the possibility
that the Merger would not be consummated; and (v) the other risks described
under "Risk Factors" herein. After due consideration, the FCG Board of Directors
concluded that the benefits of the transaction to FCG and its stockholders
outweighed the risks associated with the foregoing factors.
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The foregoing discussion of the factors considered by the FCG Board of
Directors is not intended to be exhaustive but is intended to include all of the
material factors considered by the FCG Board of Directors. In view of the
complexity and variety of factors considered by the FCG Board of Directors, the
FCG Board of Directors did not consider it practical to quantify or otherwise
attempt to assign any relative or specific weights to the specific factors
considered, and individual directors may have given differing weights to
different factors.
OPINION OF FINANCIAL ADVISOR TO ISCG
ISCG retained Baird to act as its financial advisor in connection with the
possible sale of ISCG. As part of such services, ISCG requested that Baird
render its opinion as to the fairness, from a financial point of view, of the
Exchange Ratio to the holders of ISCG Common Stock (other than FCG and its
affiliates). On September 9, 1998, Baird rendered its opinion to the ISCG Board
of Directors to the effect that, as of such date, the Exchange Ratio was fair,
from a financial point of view, to the holders of ISCG Common Stock (other than
FCG and its affiliates).
THE FULL TEXT OF THE OPINION DELIVERED BY BAIRD TO THE ISCG BOARD OF
DIRECTORS DATED SEPTEMBER 9, 1998 (THE "BAIRD OPINION"), WHICH SETS FORTH THE
ASSUMPTIONS MADE, GENERAL PROCEDURES FOLLOWED, MATTERS CONSIDERED AND
LIMITATIONS ON THE SCOPE OF REVIEW UNDERTAKEN BY BAIRD IN RENDERING ITS OPINION,
IS ATTACHED AS APPENDIX B-1 TO THIS JOINT PROXY STATEMENT/PROSPECTUS AND IS
INCORPORATED HEREIN BY REFERENCE. THE BAIRD OPINION IS DIRECTED ONLY TO THE
FAIRNESS, FROM A FINANCIAL POINT OF VIEW, OF THE EXCHANGE RATIO TO THE HOLDERS
OF ISCG COMMON STOCK (OTHER THAN FCG AND ITS AFFILIATES) AND DOES NOT CONSTITUTE
A RECOMMENDATION TO ANY ISCG SHAREHOLDER AS TO HOW SUCH SHAREHOLDER SHOULD VOTE
WITH RESPECT TO THE REORGANIZATION AGREEMENT. THE SUMMARY OF BAIRD'S OPINION SET
FORTH BELOW IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH
OPINION ATTACHED HERETO AS APPENDIX B-1. ISCG SHAREHOLDERS ARE URGED TO READ THE
OPINION CAREFULLY AND IN ITS ENTIRETY.
In conducting its investigation and analysis and in arriving at its opinion,
Baird reviewed such information and took into account such financial and
economic factors as it deemed relevant under the circumstances. In that
connection, Baird, among other things: (i) reviewed certain internal
information, primarily financial in nature, including projections, concerning
the business and operations of ISCG and FCG furnished to Baird for purposes of
its analysis, as well as publicly available information including but not
limited to ISCG's and FCG's recent filings with the Securities and Exchange
Commission (the "SEC") and equity analyst research reports prepared by various
investment banking firms, including Baird; (ii) reviewed the Reorganization
Agreement in the form presented to ISCG's Board of Directors; (iii) compared the
historical market prices and trading activity of ISCG Common Stock and FCG
Common Stock with those of certain other publicly traded companies Baird deemed
relevant; (iv) compared the financial position and operating results of ISCG and
FCG with those of other publicly traded companies Baird deemed relevant; and (v)
compared the proposed financial terms of the Merger with the financial terms of
certain other business combinations Baird deemed relevant. Baird held
discussions with members of ISCG's and FCG's respective senior managements
concerning ISCG's and FCG's historical and current financial condition and
operating results, as well as the future prospects of ISCG and FCG,
respectively. As a part of its engagement, Baird was requested to, and did,
solicit third party indications of interest in acquiring ISCG. Baird also
considered such other information, financial studies, analyses and
investigations and financial, economic and market criteria which Baird deemed
relevant for the preparation of its opinion. ISCG and FCG determined the
Exchange Ratio in arms-length negotiations. ISCG did not place any limitation
upon Baird with respect to the procedures followed or factors considered by
Baird in rendering its opinion.
In arriving at its opinion, Baird assumed and relied upon the accuracy and
completeness of all of the financial and other information that was publicly
available or provided to Baird by or on behalf of ISCG and FCG, and was not
engaged to independently verify any such information. Baird assumed, with ISCG's
consent, that: (i) all material assets and liabilities (contingent or otherwise,
known or unknown) of ISCG
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and FCG are as set forth in their respective financial statements; (ii) the
Merger will be accounted for under the pooling-of-interests method; and (iii)
the Merger will be consummated in accordance with the terms set forth in the
Reorganization Agreement, without any amendment thereto and without waiver by
ISCG or FCG of any of the conditions to their respective obligations thereunder.
At ISCG's direction, Baird assumed that no cost savings or operating synergies
will result from the Merger, and excluded transaction costs from its financial
analysis. Baird also assumed that the financial forecasts examined by it were
reasonably prepared on bases reflecting the best available estimates and good
faith judgments of ISCG's and FCG's respective senior managements as to future
performance of ISCG and FCG, respectively. In conducting its review, Baird did
not undertake nor obtain an independent evaluation or appraisal of any of the
assets or liabilities (contingent or otherwise) of ISCG or FCG nor did it make a
physical inspection of the properties or facilities of ISCG or FCG. Baird's
opinion necessarily was based upon economic, monetary and market conditions as
they existed and could be evaluated on the date of its opinion, and did not
predict or take into account any changes which may occur, or information which
may become available, after the date of such opinion. Furthermore, Baird
expressed no opinion as to the price or trading range at which any of ISCG's or
FCG's securities (including ISCG Common Stock and FCG Common Stock) will trade
following the date of such opinion.
The following is a summary of the material financial analyses performed by
Baird in connection with rendering its opinion.
ANALYSIS OF ISCG'S VALUATION PREMIUMS. Baird calculated the "Implied Equity
Value Per Share" reflected by the terms of the Merger to be $13.19 for each
share of ISCG Common Stock, obtained by multiplying the Exchange Ratio of 0.77
by the closing price per share of FCG Common Stock of $17.13 on September 4,
1998. Baird compared the premium to holders of ISCG Common Stock represented by
the Implied Equity Value Per Share of $13.19 to the closing prices for ISCG
Common Stock on such date and on the dates seven days, 30 days, 60 days, 90
days, 180 days and 52 weeks prior to the September 9, 1998 ISCG Board of
Directors meeting. Baird calculated that the Implied Equity Value Per Share
represented the following premiums or discounts to holders of ISCG Common Stock:
(i) a premium of 35.2% over the closing price of $9.75 for ISCG Common Stock on
September 4, 1998; (ii) a premium of 25.6% over the closing price of $10.50 for
ISCG Common Stock seven days prior to the date of its opinion; (iii) a premium
of 7.6% over the closing price of $12.25 for ISCG Common Stock 30 days prior to
the date of its opinion; (iv) a discount of 2.3% over the closing price of
$13.50 for ISCG Common Stock 60 days prior to the date of its opinion; (v) a
discount of 0.5% over the closing price of $13.25 for ISCG Common Stock 90 days
prior to the date of its opinion; (vi) a premium of 7.6% over the closing price
of $12.25 for ISCG Common Stock 180 days prior to the date of its opinion; and
(vii) a premium of 0.5% over the closing price of $13.13 for ISCG Common Stock
52 weeks prior to the date of its opinion. Baird noted that the premiums and
discounts of the Implied Equity Value relative to ISCG Common Stock price over
certain historical time periods were influenced by the significant volatility
and price declines experienced recently in the equity capital markets in general
and for information technology service companies in particular. Baird also
performed an analysis of the implied historical transaction premium, based upon
the Exchange Ratio of 0.77 and the closing market price per share of ISCG Common
Stock and FCG Common Stock, for each trading day from July 2, 1998 to September
4, 1998. This analysis yielded an average premium of 51.4%, and a high and low
premium of 90.4% and 21.4%, respectively, relative to the premium of 35.2% based
on the closing market price per share of ISCG Common Stock and FCG Common Stock
on September 4, 1998.
ANALYSIS OF ISCG VALUATION MULTIPLES. Baird calculated the "Implied Total
Equity Value" and "Implied Enterprise Value" of ISCG as a result of the Merger
to be $119.15 million and $115.13 million, respectively. The Implied Total
Equity Value was obtained by multiplying the Implied Equity Value Per Share by
the total number of outstanding shares of ISCG Common Stock, including shares
issuable upon exercise of stock options and warrants outstanding as of August
31, 1998, less net proceeds from the exercise of such stock options and
warrants. The Implied Enterprise Value was obtained by adding ISCG's
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outstanding total debt and subtracting ISCG's cash and cash equivalents balances
(as of July 31, 1998 as provided to Baird by ISCG management) to the Implied
Total Equity Value. In performing its analysis, Baird used, among other items,
operating statistics for ISCG's latest twelve months ended June 30, 1998
("LTM"), as provided by ISCG management. Baird calculated multiples of the
Implied Total Equity Value to ISCG's LTM net income and its projected net income
for calendar years 1998 and 1999 (based on ISCG management's estimates) and
multiples of ISCG's Implied Enterprise Value to its LTM sales, operating income
before depreciation and amortization, interest and taxes ("EBITDA") and its
operating income ("EBIT"). The calculations resulted in multiples of the Implied
Total Equity Value to net income ("P/E Ratios") of 27.6x based on LTM results,
23.8x based on projected 1998 results and 17.2x based on projected 1999 results.
The ratio of Implied Enterprise Value to LTM sales was 2.1x, the ratio of
Implied Enterprise Value to LTM EBITDA was 13.5x and the ratio of Implied
Enterprise Value to LTM EBIT was 16.6x.
IMPLIED EXCHANGE RATIO ANALYSIS. Baird performed an analysis of the
historical trading ratio between ISCG Common Stock and FCG Common Stock based on
the closing market price per share of ISCG Common Stock relative to the closing
market price per share of FCG Common Stock for each trading day from July 2,
1998 to September 4, 1998. This analysis yielded an average historical trading
ratio of 0.52, and a high and low single day exchange ratio of 0.63 and 0.40,
respectively, significantly below the Exchange Ratio of 0.77.
ANALYSIS OF SELECTED PUBLICLY TRADED ISCG COMPARABLE COMPANIES. Baird
reviewed certain publicly available financial information as of the most
recently reported period and stock market information as of September 3, 1998,
for 15 publicly traded companies that Baird deemed relevant. Such comparable
companies consisted of information technology professional services companies.
For each comparable company, Baird calculated multiples, as of September 3,
1998, of Enterprise Value to LTM sales, LTM EBITDA and LTM EBIT. Baird then
compared these multiples to the relevant ISCG multiples based on the Implied
Equity Price Per Share. An analysis of the multiples of Enterprise Value to LTM
sales, LTM EBITDA and LTM EBIT yielded 2.1x, 13.5x and 16.6x, respectively, for
ISCG compared to medians of 1.7x, 12.5x and 15.1x, respectively, for ISCG's
comparable companies. For ISCG and each comparable company, Baird also
calculated P/E Ratios based upon the Implied Equity Value Per Share for ISCG and
the closing stock prices as of September 3, 1998 for the comparable companies
and net income statistics for LTM and projected 1998 and 1999. An analysis of
the P/E Ratios based on ISCG's net income for LTM and projected 1998 and 1999
yielded 27.6x, 23.8x and 17.2x, respectively, compared to LTM, projected 1998
and 1999 medians of 23.6x, 21.3x and 17.7x, respectively, for ISCG's comparable
companies.
ANALYSIS OF SELECTED PUBLICLY TRADED FCG COMPARABLE COMPANIES. In order to
assess the relative public market valuation of FCG Common Stock to be used by
FCG in exchange for ISCG Common Stock, Baird reviewed certain publicly available
financial information as of the most recently reported period and stock market
information as of September 3, 1998, for ten publicly traded companies which
Baird deemed relevant. Such comparable companies consisted of health care
information technology services and related companies. For each comparable
company, Baird calculated multiples as of September 3, 1998, of Enterprise Value
to LTM sales, LTM EBITDA and LTM EBIT. Baird then compared these multiples to
the relevant FCG multiples based on FCG's closing share price of $17.125 on
September 4, 1998, and FCG's LTM operating performance statistics, as provided
to Baird by FCG's management. An analysis of the multiples of Enterprise Value
to sales, EBITDA and EBIT yielded 2.1x, 17.6x and 21.6x, respectively, for FCG
compared to median ratios of 2.7x, 15.1x and 24.4x, respectively, for FCG's
comparable companies. For FCG and each comparable company, Baird also calculated
P/E Ratios based on the closing stock prices as of September 4, 1998, for FCG
and September 3, 1998, for the comparable companies and LTM earnings per share
and estimated earnings per share for 1998 and 1999. An analysis of the P/E
Ratios based on earnings per share for FCG's LTM and projected 1998 and 1999
(based on First Call consensus estimates) yielded 35.7x, 34.3x and 27.2x,
respectively, compared to LTM and projected 1998 and 1999 medians of 26.1x,
28.4x and 21.2x, respectively, for FCG's comparable companies.
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ANALYSIS OF SELECTED COMPARABLE ACQUISITION TRANSACTIONS. Baird reviewed
selected acquisition transactions which Baird deemed relevant. Such transactions
were chosen based on a review of acquired companies that possessed general
business, operating and financial characteristics representative of companies in
the industry in which ISCG operates. Baird noted that none of the selected
transactions reviewed was identical to the Merger and that, accordingly, the
analysis of comparable transactions necessarily involves complex consideration
and judgments concerning differences in financial and operating characteristics
of ISCG and other factors that would affect the acquisition value of comparable
transactions including, among others, the general market conditions prevailing
in the equity capital markets at the time of such transaction. For each
comparable transaction, Baird calculated multiples of Enterprise Value to LTM
sales, LTM EBITDA and LTM EBIT, calculated P/E Ratios based on LTM net income
and estimated net income one and two years forward (from the time of the
announcement of each specific acquisition transaction), and calculated the
premiums paid for the equity in these transactions over the public market value
of the equity at various times prior to the announcement of such transaction.
Baird then compared those multiples and premiums to the relevant ISCG multiples
and premiums. These calculations yielded multiples of Enterprise Value to LTM
sales, LTM EBITDA and LTM EBIT of 2.1x, 13.5x and 16.6x, respectively, for ISCG,
compared to the LTM medians of 1.7x, 20.9x and 24.7x, respectively, for the
comparable acquisition transactions. An analysis of the P/E Ratios based on LTM
earnings per share and estimated earnings one and two years forward (from the
time of the announcement of each specific acquisition transaction) yielded
27.6x, 23.8x and 17.2x for ISCG, respectively, compared to a LTM and one and two
year estimated earnings medians of 40.8x, 32.6x and 24.9x for the comparable
transactions, respectively. An analysis of the Implied Equity Value Per Share to
the closing price of ISCG Common Stock one day, 30 days and 90 days prior to the
announcement date, compared to the prices paid for the equity in such comparable
acquisition transactions relative to the market value of equity one day, 30 days
and 90 days prior to the announcement date of such transactions, yielded a one
day premium of 35.2%, a 30 day premium of 7.6% and a 90 day discount of 0.5% for
ISCG, compared to median premiums of 32.2%, 52.0% and 33.3%, respectively, for
the comparable acquisition transactions. As mentioned earlier, the average one
day premium based on the Exchange Ratio of 0.77 and the daily closing prices per
share of ISCG Common Stock and FCG Common Stock for the two month period prior
to the announcement date was 51.2% with a high and low one day premium of 90.4%
and 21.4%, respectively. Baird noted that ISCG's Implied Enterprise Value and
P/E multiples and ISCG Common Stock price over certain historic time periods
were influenced by the significant volatility and price declines experienced
recently in the equity capital markets in general and for information technology
service companies in particular.
CONTRIBUTION ANALYSIS. Baird analyzed ISCG's and FCG's relative
contribution to the Combined Company with respect to certain measurements,
including net sales, gross profit, EBIT and net income. As a result of the
Merger, ISCG's shareholders will own approximately 28.9% of the outstanding FCG
Common Stock assuming an Exchange Ratio of 0.77. This compares to ISCG's
contribution, based on projected 1998 and 1999 statistics for the Combined
Company, of approximately 33.1% to 33.5% of net sales, 30.6% to 31.8% of gross
profit, 38.1% to 40.0% of EBIT and 36.6% to 38.8% of net income.
DISCOUNTED CASH FLOW ANALYSIS. Baird performed a discounted cash flow
analysis of ISCG on a stand alone basis using management's projections for 1998
through 2002 without taking into account any potential cost savings and
synergies which may be realized following the Merger. In such analysis, Baird
assumed terminal value multiples of 12.0x to 16.0x EBIT in the year 2002 and
discount rates of 21.0% to 25.0%. Such analysis produced implied values of ISCG
Common Stock ranging from $12.68 to $19.13 per share.
In order to assess the relative public market valuation of FCG Common Stock
to be used by FCG in exchange for ISCG Common Stock, Baird performed a
discounted cash flow analysis of FCG, on a stand alone basis, using FCG
management's projections for 1998 through 2002 without taking into account any
potential cost savings and synergies which may be realized following the Merger.
In such analysis, Baird
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assumed terminal value multiples of 22.0x to 26.0x EBIT in the year 2002 and
discount rates of 21.0% to 25.0%. Such analysis produced implied values of FCG
Common Stock ranging from $20.45 to $27.19 per share.
PRO FORMA MERGER ANALYSIS. Baird prepared pro forma analyses of the
financial impact of the Merger. In conducting its analysis, Baird relied upon
certain assumptions described above and projected earnings estimates for ISCG
(prepared by ISCG management) and FCG (prepared by FCG management). Baird
compared the earnings per share of FCG Common Stock, on a stand-alone basis, to
the earnings per share of the common stock of the Combined Company on a pro
forma basis. The analysis (assuming no transaction-related expenses, cost
savings or synergies) indicated that the proposed transaction would be accretive
to FCG's stockholders on an earnings per share basis in 1998 and 1999. The
results of the pro forma merger analysis are not necessarily indicative of
future operating results or financial position.
The foregoing summary does not purport to be a complete description of the
analyses performed by Baird. The preparation of a fairness opinion is a complex
process and is not susceptible to partial analysis or summary description. Baird
believes that its analyses must be considered as a whole, and that selecting
portions of such analyses without considering all analyses and factors, would
create an incomplete view of the processes underlying its opinion. Baird did not
attempt to assign specific weights to particular analyses. Any estimates
contained in Baird's analyses are not necessarily indicative of actual values,
which may be significantly more or less favorable than as set forth therein.
Estimates of values of companies do not purport to be appraisals or necessarily
to reflect the prices at which companies may actually be sold. Because such
estimates are inherently subject to uncertainty, Baird does not assume
responsibility for their accuracy.
Baird, as part of its investment banking business, is engaged in the
evaluation of businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, competitive biddings, secondary
distributions of listed and unlisted securities, private placements, and
valuations for estate, corporate and other purposes. ISCG retained Baird because
of its experience and expertise in the valuation of businesses and their
securities in connection with mergers and acquisitions. In the ordinary course
of business, Baird may from time to time trade equity securities of ISCG and FCG
for its own account and for accounts of its customers and, accordingly, may at
any time hold a long or short position in such securities.
COMPENSATION. Pursuant to an engagement letter dated February 10, 1998 (as
amended) between ISCG and Baird, ISCG agreed to pay Baird, upon the transaction
date, a transaction fee equal to specified percentages of the total
consideration paid. Upon the transaction closing, Baird shall be paid a
transaction fee equal to 1.0% on the amount of total consideration up to $125.0
million, plus 2.0% on the total consideration amount between $125.0 million and
$175.0 million and 3.0% on the total consideration amount over $175.0 million.
For delivering its fairness opinion on September 9, 1998, Baird is entitled to
receive a fee of $400,000, payable upon delivery of its opinion, regardless of
the conclusions reached by Baird in such opinion, with such amount fully
credited against the transaction fee discussed above. ISCG has also agreed to
reimburse Baird for certain of its reasonable out-of-pocket expenses. ISCG has
also agreed to indemnify Baird, its affiliates and their respective directors,
officers, employees and agents and controlling persons against certain
liabilities relating to or arising out of its engagement, including liabilities
under the federal securities laws. In the past, Baird has performed investment
banking services for ISCG, including acting as co-manager in ISCG's 1996 public
offering of ISCG's Common Stock. Additionally, in the past, Baird has performed
investment banking services for Safeguard Scientifics, Inc., an affiliate of
ISCG, as well as for certain other affiliates of Safeguard Scientifics, Inc.,
for which Baird has received customary compensation.
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OPINION OF FINANCIAL ADVISOR TO FCG
FCG engaged Hambrecht & Quist to act as its exclusive financial advisor in
connection with the Merger and to render an opinion as to the fairness from a
financial point of view to FCG of the Exchange Ratio. Hambrecht & Quist was
selected by the FCG Board of Directors based on Hambrecht & Quist's
qualifications, expertise and reputation, as well as Hambrecht & Quist's
historic investment banking relationship and familiarity with FCG. Hambrecht &
Quist rendered its oral opinion (subsequently confirmed in writing) on September
9, 1998 to the Board of Directors that, as of such date, the Exchange Ratio is
fair to FCG from a financial point of view.
THE FULL TEXT OF THE OPINION DELIVERED BY HAMBRECHT & QUIST TO THE FCG BOARD
OF DIRECTORS, DATED SEPTEMBER 9, 1998 (THE "HAMBRECHT & QUIST OPINION"), WHICH
SETS FORTH THE ASSUMPTIONS MADE, GENERAL PROCEDURES FOLLOWED, MATTERS CONSIDERED
AND LIMITATIONS ON THE SCOPE OF REVIEW UNDERTAKEN BY HAMBRECHT & QUIST IN
RENDERING ITS OPINION, IS ATTACHED AS APPENDIX B-2 TO THIS JOINT PROXY
STATEMENT/ PROSPECTUS AND IS INCORPORATED HEREIN BY REFERENCE. THE HAMBRECHT &
QUIST OPINION IS DIRECTED ONLY TO THE FAIRNESS, FROM A FINANCIAL POINT OF VIEW,
OF THE EXCHANGE RATIO TO FCG AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY FCG
STOCKHOLDER AS TO HOW SUCH STOCKHOLDER SHOULD VOTE WITH RESPECT TO THE
REORGANIZATION AGREEMENT. THE SUMMARY OF THE HAMBRECHT & QUIST OPINION SET FORTH
BELOW IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION
ATTACHED HERETO AS APPENDIX B-2. FCG STOCKHOLDERS ARE URGED TO READ THE OPINION
CAREFULLY AND IN ITS ENTIRETY.
In its review of the Merger, and in arriving at its opinion, Hambrecht &
Quist, among other things: (i) reviewed the publicly available consolidated
financial statements FCG for recent years and interim periods to date and
certain other relevant financial and operating data of FCG made available to it
from published sources and from the internal records of FCG; (ii) reviewed
certain internal financial and operating information, including certain
projections, relating to FCG prepared by the management of FCG; (iii) discussed
the business, financial condition and prospects of FCG with certain of its
officers; (iv) reviewed the publicly available consolidated financial statements
of ISCG for recent years and interim periods to date and certain other relevant
financial and operating data of ISCG made available to it from published sources
and from the internal records of ISCG; (v) reviewed certain internal financial
and operating information, including certain projections, relating to ISCG
prepared by the management of ISCG; (vi) discussed the business, financial
condition and prospects of ISCG with certain of its officers; (vii) reviewed the
recent reported prices and trading activity for the common stocks of FCG and
ISCG and compared such information and certain financial information for FCG and
ISCG with similar information for certain other companies engaged in businesses
it considers comparable; (viii) reviewed the financial terms, to the extent
publicly available, of certain comparable merger and acquisition transactions;
(ix) reviewed the Reorganization Agreement; and (x) performed such other
analyses and examinations and considered such other information, financial
studies, analyses and investigations and financial, economic and market data as
Hambrecht & Quist deemed relevant.
Hambrecht & Quist did not independently verify any of the information
concerning FCG or ISCG considered in connection with its review of the Merger
and, for purposes of its opinion, Hambrecht & Quist assumed and relied upon the
accuracy and completeness of all such information. In connection with its
opinion, Hambrecht & Quist did not prepare or obtain any independent valuation
or appraisal of any of the assets or liabilities of FCG or ISCG, nor did it
conduct a physical inspection of the properties and facilities of FCG or ISCG.
With respect to the financial forecasts and projections used in its analysis,
Hambrecht & Quist assumed that they reflected the best currently available
estimates and judgments of the expected future financial performance of ISCG and
FCG. For the purposes of its opinion, Hambrecht & Quist also assumed that
neither FCG nor ISCG was a party to any pending transactions, including external
financings (other than those contemplated that have been disclosed to Hambrecht
& Quist), recapitalizations or merger discussions, other than the Merger and
those in the ordinary course of conducting their respective businesses. For
purposes of its opinion, Hambrecht & Quist assumed that the Merger will qualify
as a tax-free reorganization under the Internal Revenue Code of 1986, as amended
(the
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"Code") for the shareholders of ISCG and that the Merger will be accounted for
as a pooling of interests. Hambrecht & Quist's opinion is necessarily based upon
market, economic, financial and other conditions as they existed and can be
evaluated as of the date of the opinion and any subsequent change in such
conditions would require a reevaluation of such opinion.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. The summary
of the Hambrecht & Quist analysis set forth below does not purport to be a
complete description of the presentation by Hambrecht & Quist to the FCG Board
of Directors. In arriving at its opinion, Hambrecht & Quist did not attribute
any particular weight to any analyses or factors considered by it, but rather
made qualitative judgments as to the significance and relevance of each analysis
and factor. Accordingly, Hambrecht & Quist believes that its analyses and the
summary set forth below must be considered as a whole and that selecting
portions of its analyses, without considering all analyses, or of the following
summary, without considering all factors and analyses, could create an
incomplete view of the processes underlying the analyses set forth in the
Hambrecht & Quist presentation to the FCG Board of Directors and its opinion. In
performing its analyses, Hambrecht & Quist made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of FCG and ISCG. The
analyses performed by Hambrecht & Quist (and summarized below) are not
necessarily indicative of actual values or actual future results, which may be
significantly more or less favorable than suggested by such analyses.
Additionally, analyses relating to the values of businesses do not purport to be
appraisals or to reflect the prices at which businesses actually may be
acquired.
In performing its analysis, Hambrecht & Quist used published Hambrecht &
Quist research estimates for projections of FCG's calendar year 1998 and 1999
financial performance. Hambrecht & Quist used published Baird research estimates
for projections of ISCG's calendar year 1998 and 1999 financial performance.
The following is a brief summary of certain financial analyses performed by
Hambrecht & Quist in connection with providing its written opinion to the FCG
Board of Directors on September 9, 1998:
CONTRIBUTION ANALYSIS. Hambrecht & Quist analyzed the contribution of each
of FCG and ISCG to certain calendar 1998 and 1999 financial statement categories
of the pro forma Combined Company using published research estimates for both
companies with no revenue or expense adjustments. The financial statement
categories included revenue, operating income, and pretax income. This
contribution analysis was then compared to the pro forma ownership percentage of
FCG stockholders and ISCG shareholders in the pro forma post-merger Combined
Company. Hambrecht & Quist observed that, calculated on a treasury share basis,
FCG stockholders are expected to own approximately 70% of the Combined Company
equity at the close of the Merger and ISCG shareholders are expected to own
approximately 30% of the Combined Company equity at the close of the Merger. It
was estimated that FCG and ISCG would contribute approximately 67% and 33%,
respectively, of the combined revenues, approximately 61% and 39%, respectively,
of the combined operating income and approximately 64% and 36%, respectively, of
the combined pretax income in calendar 1998. It was estimated that FCG and ISCG
would contribute approximately 64% and 36%, respectively, of the combined
revenue, approximately 57% and 43%, respectively, of the combined operating
income and approximately 60% and 40%, respectively, of the combined pretax
income in calendar year 1999.
PRO FORMA MERGER ANALYSIS. Hambrecht & Quist analyzed the pro forma impact
of the Merger on the Combined Company's calendar 1998 and 1999 earnings per
share ("EPS") using published research for both companies. Hambrecht & Quist
observed that this resulted in greater EPS for the Combined Company than for FCG
on a stand-alone basis. The foregoing analysis did not assume any adjustments in
revenues or costs resulting from the operating synergies potentially realized
from the Merger. The actual results and savings achieved by the Combined Company
resulting from the Merger may vary from the projected results and variations may
be material.
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ANALYSIS OF PUBLICLY TRADED COMPARABLE COMPANIES. Hambrecht & Quist
compared selected historical and projected financial information of ISCG to
publicly traded information technology ("IT") staff augmentation and to publicly
traded IT consulting companies Hambrecht & Quist deemed to be comparable to
ISCG. Such information included the ratio of market value to projected net
income and historical book value. Hambrecht & Quist also examined the ratio of
the enterprise value (market value plus debt less cash) to historical EBITDA and
EBIT. IT staff augmentation companies deemed comparable were Alternative
Resources Corp., Analysts International Corp., Complete Business Solutions,
Inc., Computer Horizons Corp., Computer Management Sciences, Inc., Cotelligent
Group, Inc., Data Processing Resources Corp., Hall Kinion & Associates, Inc.,
Mastech Corp., PRT Group, Inc., Renaissance Worldwide, Inc., Syntel, Inc., Tier
Technologies, Inc. and Ubics, Inc. IT consulting companies deemed comparable
were American Management Systems, Inc., Analysis & Technology, Inc., Cambridge
Technology Partners, Inc., Ciber, Inc., Diamond Technology Partners, Inc.,
ECsoft Group, plc, Exponent, Inc., First Consulting Group, Inc., Metzler Group,
Inc., Sapient Corp., Superior Consultant Holdings Corp. and Technology Solutions
Company. The foregoing multiples were applied to historical financial results of
ISCG for the LTM period ended June 30, 1998 and projected net income for
calendar 1998 and 1999 based on published Baird research estimates. Hambrecht &
Quist determined mean values for the IT staff augmentation companies of 1.8
times LTM revenue, 13.2 times LTM EBITDA, 14.8 times LTM EBIT, 21.1 times
projected calendar 1998 net income, 16.1 times projected calendar 1999 net
income, and 4.1 times book value. Based on the analysis of comparable IT staff
augmentation companies, ISCG's implied equity value per share ranged from $9.95
to $12.30. Hambrecht & Quist determined mean values for the IT consulting
companies of 3.4 times LTM revenue, 23.5 times LTM EBITDA, 28.9 times LTM EBIT,
30.6 times projected calendar 1998 net income, 24.4 times projected calendar
1999 net income, and 5.6 times book value. Based on the analysis of comparable
IT consulting companies, ISCG's implied equity value per share ranged from
$14.58 to $21.04. Each implied equity value range compared with an offer in the
proposed merger of approximately $13.67 per share based on the Exchange Ratio of
0.77 and closing price of FCG Common Stock on September 3, 1998 of $17.75.
ANALYSIS OF SELECTED MERGER AND ACQUISITION TRANSACTIONS. Hambrecht & Quist
compared the proposed merger with selected merger and acquisition transactions.
This analysis included 32 transactions involving companies in the consulting and
information services industry ("Comparable M&A Transactions"). In examining
these transactions, Hambrecht & Quist analyzed certain income statement and
balance sheet parameters of the acquired company relative to the consideration
offered. The foregoing multiples were applied to historical financial results of
ISCG for the twelve-month period ended June 30, 1998. Multiples analyzed
included consideration offered to LTM revenue, LTM EBITDA, LTM EBIT, LTM net
income, and book value. The mean multiples offered in the selected Comparable
M&A Transactions was 2.3 times LTM revenues, 28.6 times LTM EBITDA, 28.7 times
LTM EBIT, 47.6 times LTM net income, and 11.6 times book value. Based on the
analysis of selected Comparable M&A Transactions, ISCG's implied equity value
applying multiples to historical results ranged from values between $12.97 and
$30.32 per share. This compared with an offer in the proposed merger of
approximately $13.67 per share based on the Exchange Ratio of 0.77 and closing
price of FCG Common Stock on September 3, 1998 of $17.75.
No company or transaction used in the above analyses is identical to ISCG or
the Merger. Accordingly, an analysis of the results of the foregoing is not
mathematical; rather it involves complex considerations and judgments concerning
differences in financial and operating characteristics of the companies and
other factors that could affect the public trading values of the companies or
company to which they are compared.
PREMIUM ANALYSIS. Hambrecht & Quist compared the implied premium of the
offer as of September 3, 1998 to similar premiums for the seven relevant
Comparable M&A Transactions. Hambrecht & Quist observed that the mean one-day
premium paid in the selected public company transactions was 36%. This compared
with the proposed acquisition in which, as of September 3, 1998, represented a
premium over the closing price for ISCG Common Stock of 38%. Hambrecht & Quist
also analyzed the implied
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premiums to mean historical closing prices for the one week, one month and three
months ending September 3, 1998 using the implied offer price based on the 0.77
Exchange Ratio and found that the implied premiums were 28%, 53% and 48%,
respectively.
DISCOUNTED CASH FLOW ANALYSIS. Hambrecht & Quist performed discounted cash
flow analyses for ISCG using published research estimates for calendar 1998 and
1999 and ISCG management projections as adjusted by FCG management for calendar
2000 through 2002. The analysis aggregated (i) the present value of the
projected free cash flow (defined as after-tax EBIT, less increases in working
capital, plus depreciation and amortization, and less capital expenditures)
through 2002, (ii) the present value of a range of terminal values for the year
2002, and (iii) the combined value of debt and cash on the balance sheet of ISCG
as of August 1998. The terminal values for ISCG were determined by applying
multiples ranging from 1.5 to 2.5 times ISCG's estimated revenue for 2002.
ISCG's free cash flow streams and terminal values were discounted to present
values using discount rates ranging from 16% to 20%. Such analyses indicated a
range of equity values for ISCG of between $15.24 and $28.13 per share. This
compared with an offer in the proposed merger of approximately $13.67 per share
based on the Exchange Ratio of 0.77 and closing price of FCG Common Stock on
September 3, 1998 of $17.75.
The foregoing description of Hambrecht & Quist's opinion is qualified in its
entirety by reference to the full text of such opinion which is attached as
Appendix B-2 to this Joint Proxy Statement/Prospectus.
Hambrecht & Quist, as part of its investment banking services, is regularly
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, strategic transactions, corporate restructurings,
negotiated underwriting, secondary distributions of listed and unlisted
securities, private placements and valuations for corporate and other purposes.
In the past, Hambrecht & Quist has provided investment banking and other
financial advisory services to FCG and has received fees for rendering these
services. In particular, Hambrecht & Quist acted as lead underwriter of FCG's
initial public offering on February 13, 1998, and received a fee for these
services. In the ordinary course of business, Hambrecht & Quist acts as a market
maker and broker in the publicly traded securities of FCG and receives customary
compensation in connection therewith, and also provides research coverage for
FCG. In the ordinary course of business, Hambrecht & Quist actively trades in
the equity and derivative securities of FCG for its own account and for the
accounts of its customers and, accordingly, may at any time hold a long or short
position in such securities. Hambrecht & Quist may in the future provide
additional investment banking or other financial advisory services to FCG.
COMPENSATION. Pursuant to an engagement letter dated June 29, 1998, FCG has
agreed to pay Hambrecht & Quist a fee of $250,000 in connection with the
delivery of the fairness opinion rendered on September 9, 1998. Upon
consummation of the Merger, FCG has agreed to pay Hambrecht & Quist a fee of
0.9% of the aggregate consideration paid in the transaction, less any fees
previously paid. FCG also has agreed to reimburse Hambrecht & Quist for its
reasonable out-of-pocket expenses and to indemnify Hambrecht & Quist against
certain liabilities, including liabilities under the federal securities laws or
relating to or arising out of Hambrecht & Quist's engagement as financial
advisor.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of ISCG's management and the ISCG Board of Directors may be
deemed to have certain interests in the Merger that are in addition to their
interests as shareholders of ISCG generally. The ISCG Board of Directors was
aware of these interests and considered them, among other matters, in approving
the Reorganization Agreement and the transactions contemplated thereby.
INDEMNIFICATION AND INSURANCE. The Reorganization Agreement provides that
all rights to indemnification existing in favor of the persons serving as
directors and officers of ISCG as of the date of the Reorganization Agreement
for acts or omissions occurring prior to the Effective Time, as provided in the
ISCG Bylaws and in any indemnification agreements between ISCG and such
directors and officers, will
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survive the Merger, and that FCG will cause ISCG (the "Surviving Corporation")
to perform its obligations arising thereunder for at least six years from the
Effective Time. Subject to certain limitations, FCG has also agreed to cause the
Surviving Corporation to maintain in effect for three years after the Effective
Time a policy of directors' and officers' liability insurance for the benefit of
persons serving as directors and officers of ISCG as of such --ate. See "The
Reorganization Agreement]Covenants-- Indemnification and Insurance."
NOMINATION AND APPOINTMENT OF DIRECTORS. As soon as practicable after the
Effective Time, FCG shall use reasonable efforts to nominate and appoint (i)
Warren V. Musser, or such other nominee designated by ISCG, to Class I of the
FCG Board of Directors to serve until the annual meeting of stockholders to be
held in 1999 and (ii) David S. Lipson, or such other nominee designated by ISCG,
to Class II of the FCG Board of Directors to serve until the annual meeting of
stockholders to be held in 2000.
VOTING AGREEMENTS
ISCG VOTING AGREEMENTS. Pursuant to the ISCG Voting Agreements, the ISCG
Voting Agreement Shareholders, who beneficially own an aggregate of 5,253,996
outstanding shares of ISCG Common Stock (representing approximately 60.0% of the
shares of ISCG Common Stock as of September 9, 1998) have agreed that, prior to
the Expiration Date, they will vote their shares of ISCG Common Stock in favor
of: (i) approval and adoption of the Reorganization Agreement; (ii) approval of
the Merger; and (iii) each of the other actions contemplated by the
Reorganization Agreement. The ISCG Voting Agreement Shareholders have also
delivered to FCG irrevocable proxies with respect to the matters covered by the
ISCG Voting Agreements. In addition, the ISCG Voting Agreement Shareholders have
agreed not to transfer any securities of ISCG owned by them unless and until the
proposed transferee of such ISCG securities shall have (i) executed a
counterpart of the ISCG Voting Agreement and an irrevocable proxy and (ii)
agreed to hold such ISCG securities subject to all of the terms and provisions
of the ISCG Voting Agreement. The affirmative vote of the shares of ISCG Common
Stock subject to the ISCG Voting Agreements will be sufficient to approve and
adopt the Reorganization Agreement and to approve the Merger. The form of ISCG
Voting Agreement is attached to this Joint Proxy Statement/Prospectus as
Appendix C-1.
FCG VOTING AGREEMENTS. Pursuant to the FCG Voting Agreements, the FCG
Voting Agreement Stockholders, who beneficially own an aggregate of 4,339,072
outstanding shares of FCG Common Stock (representing approximately 27.3% of the
shares of FCG Common Stock as of September 9,1998) have agreed that, prior to
the Expiration Date, they will vote their shares of FCG Common Stock in favor of
(i) the issuance of the shares of FCG Common Stock to be issued in the Merger
and (ii) each of the other actions contemplated by the Reorganization Agreement.
The FCG Voting Agreement Stockholders have also delivered to ISCG irrevocable
proxies with respect to the matters covered by the FCG Voting Agreements. In
addition, the FCG Voting Agreement Stockholders have also agreed, in certain
instances, to require any party to whom their shares of FCG Common Stock may be
sold, pledged, granted an option to purchase, or otherwise transferred to
execute a counterpart of the FCG Voting Agreement and agree to hold such FCG
securities subject to all the terms and provisions of the FCG Voting Agreements.
The form of FCG Voting Agreement is attached to this Joint Proxy
Statement/Prospectus as Appendix C-2.
AFFILIATE AGREEMENTS
ISCG AFFILIATE AGREEMENTS. Pursuant to certain agreements (each an "ISCG
Affiliate Agreement"), certain individuals and entities that may be deemed
affiliate of ISCG (each, an "ISCG Affiliate") have agreed not to effect any
sale, transfer or other disposition of the FCG Common Stock received by such
ISCG Affiliate in the Merger unless: (i) such sale, transfer or other
disposition is made in conformity with the volume and other requirements of Rule
145 under the Securities Act of 1933, as amended (the "Securities Act"), as
evidenced by a broker's letter and a representation letter executed by the ISCG
Affiliate (reasonably satisfactory in form and content to FCG), each stating
that such requirements have
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been met; (ii) legal counsel reasonably satisfactory to FCG shall have advised
FCG in a written opinion letter (reasonably satisfactory in form and content to
FCG), upon which FCG may rely, that such sale, transfer or other disposition
will be exempt from registration under the Securities Act; (iii) such sale,
transfer or other disposition is effected pursuant to an effective registration
statement under the Securities Act; or (iv) an authorized representative of the
Commission shall have rendered written advice to such ISCG Affiliate to the
effect that the Commission would take no action, or that the staff of the
Commission would not recommend that the Commission take action, with respect to
such proposed sale, transfer or other disposition, and a copy of such written
advice and all other related communications with the Commission shall have been
delivered to FCG.
In addition, so as to help ensure that the Merger will be treated as a
pooling of interests for accounting and financial reporting purposes, the ISCG
Affiliate Agreements provide that during the period contemplated by the
Commission's Staff Accounting Bulletin Number 65 until the earlier of (i) FCG's
public announcement of financial results covering at least 30 days of combined
operations of FCG and ISCG or (ii) the Reorganization Agreement is terminated in
accordance with its terms, no ISCG Affiliate shall sell, exchange, transfer,
pledge, distribute or otherwise dispose of or grant any option, establish any
"short" or put-equivalent position with respect to or enter into any similar
transaction (through derivatives or otherwise) intended or having the effect,
directly or indirectly, to reduce such ISCG Affiliate's risk relative to: (i)
any ISCG Common Stock (except pursuant to and upon consummation of the Merger);
or (ii) any FCG Common Stock received by such ISCG Affiliate in the Merger or
upon exercise of options assumed by FCG in the Merger. Provided certain
conditions are met, the ISCG Affiliate Agreements provide for certain exceptions
to the foregoing restrictions on transfer relating to: (i) certain DE MINIMIS
transfers; (ii) transfers in payment of the exercise price of options to
purchase ISCG Common Stock or FCG Common Stock; (iii) charitable donations; and
(iv) transfers to trusts established for the benefit of members of such ISCG
Affiliate's family or gifts to members of such ISCG Affiliate's family. The form
of ISCG Affiliate Agreement is attached to this Joint Proxy Statement/Prospectus
as Appendix D-1.
FCG AFFILIATE AGREEMENTS. Pursuant to certain agreements (each an "FCG
Affiliate Agreement" and, collectively, the "FCG Affiliate Agreements"), certain
individuals and entities that may be deemed affiliates of FCG (each, an "FCG
Affiliate") have agreed that, during the period contemplated by the Commission's
Staff Accounting Bulletin Number 65 until the earlier of (i) FCG's public
announcement of financial results covering at least 30 days of combined
operations of FCG and ISCG or (ii) the Reorganization Agreement is terminated in
accordance with its terms, such FCG Affiliate shall not, subject to certain
exceptions, sell, exchange, transfer, pledge, distribute or otherwise dispose of
or grant any option, establish any "short" or put-equivalent position with
respect to or enter into any similar transaction (through derivative's or
otherwise) intended or having the effect, directly or indirectly, to reduce such
FCG Affiliate's risk relative to any FCG Common Stock. Provided certain
conditions are met, the FCG Affiliate Agreements provide for certain exceptions
to the foregoing restrictions on transfer relating to: (i) certain DE MINIMIS
transfers; (ii) transfers in payment of the exercise price of options to
purchase FCG Common Stock; (iii) charitable donations; or (iv) transfers to
trusts established for the benefit of members of such FCG Affiliate's family or
gifts to members of such FCG Affiliate's family. The form of the FCG Affiliate
Agreement is attached to this Joint Proxy Statement/Prospectus as Appendix D-2.
REGISTRATION RIGHTS AGREEMENT
Upon the consummation of the transactions contemplated by the Reorganization
Agreement, which will occur on a date to be agreed by FCG and ISCG (the "Closing
Date"), certain holders of ISCG stock, consisting of David S. Lipson, Technology
Leaders II, Safeguard Scientifics, Inc. and the Warrant and Stock Trust
(collectively the "Holders"), will be entitled to certain rights with respect to
the registration of their shares of FCG Common Stock issued in connection with
the Merger under the Securities Act. Under the terms of the Registration Rights
Agreement, which ISCG has agreed to deliver on the Closing Date, if FCG proposes
to register any of its securities under the Securities Act for purposes of
distributing
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securities of FCG by means of an underwritten public offering, the Holders are
entitled to notice of such registration and are entitled to include their shares
of stock, provided, among other conditions, that the underwriters of any
offering have the right to limit the number of shares included in such
registration or exclude such shares entirely. In addition, subject to certain
conditions, the Holders may also require FCG, beginning on the date of FCG's
public announcement of financial results covering at least 30 days of combined
operations of FCG and ISCG, and expiring 18 months from the date of the
Registration Rights Agreement, on not more than one occasion, to file a
registration statement under the Securities Act at FCG's expense (other than
underwriting discounts and commissions) with respect to the shares owned by the
Holders, which amount may be reduced by shares owned by other holders of
registration rights; provided, further, that the number of shares allocated to
the Holders shall not be less than 2,000,000 shares unless the aggregate number
of shares to be registered is less than 2,000,000, in which case all shares to
be registered shall be allocated to the Holders. The form of the Registration
Rights Agreement is attached to this Joint Proxy Statement/Prospectus as
Appendix E.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes the material federal income tax
considerations of the Merger that are generally applicable to holders of ISCG
Common Stock. This discussion assumes that holders of ISCG Common Stock hold
such shares as capital assets. This discussion is based on currently existing
provisions of the Code, existing and proposed Treasury Regulations thereunder
and current administrative rulings and court decisions, all of which are subject
to change. Any such change, which may or may not be retroactive, could alter the
tax consequences to FCG, ISCG or the ISCG shareholders as described herein.
ISCG shareholders should be aware that this discussion does not deal with
all U.S. federal income tax considerations that may be relevant to particular
ISCG shareholders in light of their particular circumstances, such as
shareholders who are dealers in securities, banks, insurance companies or
tax-exempt organizations, who are subject to the alternative minimum tax
provisions of the Code, who are non-United States persons, who acquired their
shares in connection with stock option or stock purchase plans or in other
compensatory transactions or who hold their shares as a hedge or as part of a
hedging, straddle, conversion or other risk reduction transaction. In addition,
the following discussion does not address the tax consequences of the Merger
under foreign, state or local tax laws or the tax consequences of transactions
effectuated prior to or after the Merger (whether or not such transactions are
in connection with the Merger).
It is the opinion of Saul Ewing and Cooley Godward that the Merger will
constitute a reorganization (a "Reorganization") pursuant to Section 368(a) of
the Code (collectively, the "Tax Opinions"). In addition, ISCG's obligation to
consummate the Merger is conditioned on the receipt by ISCG of an opinion from
Saul Ewing, and FCG's and Merger Sub's obligations to consummate the Merger are
conditioned on their receipt of an opinion from Cooley Godward, confirming that
the Merger will constitute a Reorganization (collectively, the "Closing
Opinions"). Such conditions will not be waived without a resolicitation of
consent by the shareholders of ISCG and stockholders of FCG. Saul Ewing and
Cooley Godward have advised ISCG, and FCG and Merger Sub, respectively, that
they currently expect to be able to deliver such Closing Opinions. See "The
Reorganization Agreement--Conditions to the Merger--FCG and Merger Sub" and
"--ISCG." The Tax Opinions and Closing Opinions (i) will not be binding on the
IRS nor preclude the IRS from adopting a contrary position, (ii) will be based
on the assumptions discussed below, as well as representations received from
ISCG, FCG and Merger Sub, (iii) will be based on the assumption that the Merger
will be consummated in accordance with the terms of the Reorganization Agreement
and (iv) will be subject to the limitations discussed below. Neither ISCG nor
FCG has requested, or will request, a ruling from the IRS with regard to any of
the federal income tax consequences of the Merger. The Tax Opinions and Closing
Opinions assume and are conditioned upon (i) the truth and accuracy of the
statements, covenants, representations and warranties contained in the
Reorganization Agreement, in the representations received from ISCG, FCG and
Merger Sub to support the Tax Opinions and Closing Opinions (the "Tax
Representations") and in all other instruments and
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documents related to the formation, organization and operation of ISCG, FCG and
Merger Sub examined by and relied upon by Saul Ewing and Cooley Godward in
connection with the Merger; (ii) that original documents submitted to such
counsel (including signatures thereto) are authentic, documents submitted to
such counsel as copies conform to the original documents, and that all such
documents have been (or will be by the Effective Time) duly and validly executed
and delivered where due execution and delivery are a prerequisite to the
effectiveness thereof; (iii) that all covenants contained in the Reorganization
Agreement (including exhibits thereto) and in the Tax Representations are
performed without waiver or breach of any material provision thereof; (iv) that
the Merger will be reported by FCG and ISCG on their respective federal income
tax returns in a manner consistent with the Tax Opinions and the Closing
Opinions; and (v) that any representation or statement made "to the best of
knowledge" or similarly qualified is correct without such qualification.
Subject to the limitations and qualifications referred to herein and in the
Tax Opinions and Closing Opinions, it is the opinion of Saul Ewing and Cooley
Godward that as a result of the Merger's qualifying as a Reorganization, the
following U.S. federal income tax consequences will result:
(i) No gain or loss will be recognized for federal income tax purposes
by the holders of ISCG Common Stock upon the receipt of FCG Common Stock
solely in exchange for such ISCG Common Stock in the Merger (except to the
extent, if any, of cash received in lieu of fractional shares);
(ii) The aggregate tax basis of the FCG Common Stock so received by each
ISCG shareholder in the Merger (including any fractional share of FCG Common
Stock not actually received) will be the same as the aggregate tax basis of
ISCG Common Stock surrendered by such ISCG shareholder in exchange therefor;
(iii) The holding period of FCG Common Stock so received by each ISCG
shareholder in the Merger will include the period for which ISCG Common
Stock surrendered in exchange therefor was considered to be held, provided
that ISCG Common Stock so surrendered is held as a capital asset at the
Effective Time;
(iv) Cash payments received by holders of ISCG Common Stock in lieu of a
fractional share will be treated as if such fractional share of FCG Common
Stock had been issued in the Merger and then redeemed by FCG. An ISCG
shareholder receiving such cash will recognize gain or loss upon such
payment, measured by the difference (if any) between the amount of cash
received and the basis in such fractional share. The gain or loss should be
capital gain or loss provided that each such fractional share of ISCG Common
Stock was held as a capital asset at the Effective Time;
(v) A shareholder of ISCG who properly exercises dissenters' rights
under any applicable law with respect to a share of ISCG Common Stock and
receives payments for such stock in cash should recognize capital gain or
loss (if such stock was held as a capital asset at the Effective Time of the
Merger) measured by the difference between the amount of cash received and
the shareholder's basis in such share, provided such payment is neither
essentially equivalent to a dividend within the meaning of Section 302 of
the Code nor has the effect of a distribution of a dividend within the
meaning of Section 356(a)(2) of the Code (collectively, a "Dividend
Equivalent Transaction"). A sale of ISCG shares incident to an exercise of
dissenters' rights will generally not be a Dividend Equivalent Transaction
if, as a result of such exercise, the dissenting shareholder owns no shares
of FCG Common Stock (either actually or constructively within the meaning of
Section 318 of the Code) immediately after the Merger; and
(vi) Neither FCG nor ISCG will recognize gain solely as a result of the
Merger.
A successful IRS challenge to the Reorganization status of the Merger would
result in significant adverse tax consequences to the ISCG shareholders. An ISCG
shareholder would recognize gain or loss with respect to each share of ISCG
Common Stock surrendered equal to the difference between the shareholder's basis
in such share and the fair market value, as of the Effective Time, of the FCG
Common Stock received in exchange therefor. In such event, a shareholder's
aggregate basis in the FCG Common
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Stock so received would equal its fair market value, and the shareholder's
holding period for such stock would begin the day after the Closing Date.
Even if the Merger qualifies as a Reorganization, a recipient of FCG Common
Stock would recognize income to the extent that, for example, any such shares
were determined to have been received in exchange for services, to satisfy
obligations or in consideration for anything other than the ISCG Common Stock
surrendered. In addition, to the extent that an ISCG shareholder were treated as
receiving (directly or indirectly) consideration other than FCG Common Stock in
exchange for such shareholder's ISCG Common Stock, gain, if any, would have to
be recognized.
Certain noncorporate ISCG shareholders may be subject to backup withholding
at a rate of 31% on cash payments received in lieu of a fractional share
interest in FCG Common Stock. Backup withholding will not apply, however, to a
shareholder who furnishes a correct taxpayer identification number ("TIN") and
certifies that he, she or it is not subject to backup withholding on the
substitute Form W-9 included in the letter of transmittal, who provides a
certificate of foreign status on Form W-8, or who is otherwise exempt from
backup withholding. A shareholder who fails to provide the correct TIN on Form
W-9 may be subject to a $50 penalty imposed by the IRS.
THE PRECEDING DISCUSSION DOES NOT PURPORT TO BE A COMPLETE ANALYSIS OR
DISCUSSION OF ALL POTENTIAL TAX EFFECTS RELEVANT TO THE MERGER. THUS, HOLDERS OF
ISCG COMMON STOCK ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE SPECIFIC
TAX CONSEQUENCES TO THEM OF THE MERGER, INCLUDING TAX RETURN REPORTING
REQUIREMENTS, THE APPLICABILITY AND EFFECT OF FEDERAL, STATE, LOCAL AND OTHER
APPLICABLE TAX LAWS AND THE EFFECTS OF ANY PROPOSED CHANGES IN THE TAX LAWS.
Each ISCG shareholder will be required to retain records and file with such
shareholder's U.S. federal income tax return a statement setting forth certain
facts relating to the Merger.
ANTICIPATED ACCOUNTING TREATMENT
The Merger is intended to qualify as a pooling of interests for financial
reporting purposes in accordance with GAAP. This accounting method would permit
the recorded assets and liabilities of ISCG to be carried forward to the
consolidated financial statements of FCG at their recorded historical amounts.
Consummation of the Merger is conditioned upon (i) the receipt by FCG of a
letter from its independent accountants dated as of the Closing Date to the
effect that such accountants concur with FCG management's conclusion that
pooling of interests accounting for the Merger is appropriate, and (ii) receipt
by ISCG of a letter from its independent accountants dated as of a date no
earlier than the date three days prior to the Effective Time to the effect that
such accountants concur with ISCG management's conclusion that no conditions
exist relating to ISCG that would preclude FCG from accounting for the Merger as
a pooling of interests.
REGULATORY MATTERS
ANTITRUST. The Merger is not subject to the premerger notification
requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act"). However, the FTC or the Antitrust Division of the
United States Department of Justice (the "Antitrust Division") could take such
action under the antitrust laws as it deems necessary or desirable in the public
interest, including seeking to enjoin consummation of the Merger or seeking to
cause divestiture of significant assets of FCG or ISCG or their subsidiaries.
There can be no assurance that a challenge to the Merger on antitrust grounds
will not be made, or, if such challenge is made, of what the result would be.
Consummation of the Merger is conditioned upon, among other things, the absence
of any temporary restraining order, preliminary or permanent injunction, or
other order issued by any federal or state court in the United States which
prevents the consummation of the Merger.
FILINGS WITH THE SECRETARY OF STATE OF THE COMMONWEALTH OF PENNSYLVANIA AND
THE SECRETARY OF STATE OF THE STATE OF DELAWARE. Articles of Merger must be
filed with the Secretary of State of the Commonwealth of
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Pennsylvania and a Certificate of Merger must be filed with the Secretary of
State of Delaware to consummate the Merger.
RIGHTS OF DISSENTING SHAREHOLDERS OF ISCG
Pursuant to the PBCL, shareholders of ISCG have the right to dissent from
the Merger, and to obtain payment of the "fair value" (as defined in the PBCL)
of their shares, if the Merger is consummated. The term "fair value" means the
fair value of the shares immediately before completion of the Merger, taking
into account all relevant factors, but excluding any appreciation or
depreciation in anticipation of the Merger.
The following summary of the steps to be taken if the right to dissent is to
be exercised is qualified in its entirety by the full text of Section 1930 and
Subchapter D of Chapter 15 of the PBCL, which are attached to this Joint Proxy
Statement/Prospectus as Appendix F. Each step must be taken in the indicated
order and in strict compliance with the applicable provisions of the statute in
order to perfect dissenters' rights. The failure of any shareholder to comply
with these steps will result in the shareholder receiving the consideration
contemplated by the Reorganization Agreement and waiving his right to dissent.
Any shareholder of ISCG who contemplates exercising the right to dissent is
urged to read carefully the provisions of Section 1930 and Subchapter D of
Chapter 15 of the PBCL.
Any written notice or demand which is required in connection with the
exercise of dissenters' rights, whether before or after the Effective Time, may
be sent to ISCG at the ISCG Principal Offices.
A shareholder who wishes to dissent must file with ISCG prior to the vote of
shareholders on the Merger at the ISCG Special Meeting, a written notice of
intention to demand that he be paid the fair value for his shares, if the Merger
is effected, must effect no change in the beneficial ownership of his shares
from the date of such filing continuously through the Closing Date, and must
refrain from voting his shares to approve the Merger. Neither a proxy nor a vote
against approval of the Merger will constitute the necessary written notice of
intention to dissent. A beneficial owner of shares which are held of record in
"street name" by a brokerage firm or other nominee must obtain the written
consent of such record holder to such beneficial owner's exercise of dissenters'
rights and must submit such consent to ISCG, no later than the time of the
filing of his notice of intention to dissent.
If the Merger is approved by the required vote of ISCG's shareholders at the
ISCG Special Meeting, ISCG will mail a notice to all dissenters who gave due
notice of intention to demand payment of their shares and who refrained from
voting in favor of the Merger. The notice will state where and when a demand for
payment must be sent and certificates for the shares must be deposited in order
to obtain payment, and will include a form for demanding payment and a copy of
Subchapter D of Chapter 15 of the PBCL. The time set for receipt of the demand
for payment and deposit of stock certificates will not be less than 30 days from
the date of mailing of the notice.
A shareholder who fails to timely demand payment or fails to timely deposit
stock certificates, as required by ISCG's notice, will not have any right to
receive payment of the fair value of his shares.
Promptly after completion of the Merger, or upon timely receipt of demand
for payment if the Merger already has been completed, ISCG will either remit to
dissenters who have made demand and have deposited their stock certificates the
amount that ISCG estimates to be the fair value of such dissenters' shares or
give written notice that no such remittance is being made. The remittance or
notice will be accompanied by (i) a closing balance sheet and an income
statement of ISCG for a fiscal year ending not more than 16 months before the
date of remittance or notice, together with the latest available interim
financial statements, (ii) a statement of ISCG's estimate of the fair value of
the shares, and (iii) notice of the right of the dissenter to demand payment or
supplemental payment under the PBCL, as the case may be, accompanied by a copy
of Subchapter D of Chapter 15 of the PBCL. If ISCG does not remit the amount of
its estimated fair value for shares with respect to which demand for payment has
been made and stock certificates have been deposited, then ISCG will return any
certificates that have been deposited.
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Returned certificates, and any certificates subsequently issued in exchange
therefor, will be marked to record the fact that demand for payment has been
made. Transferees of shares so marked shall not acquire any rights in ISCG other
than those rights held by the original dissenter after such dissenter demanded
payment of fair value.
If a dissenter believes that the amount stated in the notice as ISCG's
estimate of the fair value of the dissenters' shares or remitted by ISCG is less
than the fair value of the dissenters' shares, he may send ISCG his own estimate
of the fair value of such shares, which shall be deemed to be a demand for
payment of the amount of the deficiency. If ISCG remits payment of its estimated
value of a dissenter's shares or delivers notice of its estimate of the fair
value of the dissenters' shares, and the dissenter does not file his own
estimate within 30 days after the mailing by ISCG of its remittance or notice,
the dissenter will be entitled to no more than the amount stated in the notice
or remitted to him by ISCG.
Within 60 days after the latest to occur of completion of the Merger, timely
receipt by ISCG of any demands for payment, or timely receipt by ISCG, as the
case may be, of any estimates by dissenters of fair value, if any demands for
payment remain unsettled, ISCG may file in the Court of Common Pleas of Chester
County (the "Court"), an application requesting that the fair value of the
dissenters' shares be determined by the Court. In such case, all dissenters,
wherever residing, whose demands have not been settled shall be made parties to
the proceeding as in an action against their shares, and a copy of the
application shall be served on each such dissenter. The Court may appoint an
appraiser to receive evidence and recommend a decision on the issue of fair
value. The appraiser shall have such power and authority as may be specified in
the order of appointment or in any amendment thereof. Each dissenter who is made
a party shall be entitled to recover the amount by which the fair value of his
shares is found to exceed the amount, if any, previously remitted, plus
interest. If ISCG were to fail to file such an application, then any dissenter
who has made a demand and who has not settled his claim against ISCG may file an
application in the name of ISCG at any time within 30-days after the expiration
of the 60-day period and request that the fair value be determined by the Court.
If no dissenter files such an application, then each dissenter entitled to do so
shall be paid ISCG's estimate of the fair value of the dissenters' shares and no
more, and may bring an action to recover any amount not previously remitted.
If ISCG were to fail to file such an application, then any dissenter who has
made a demand and who has not settled his claim against ISCG may file an
application in the name of ISCG at any time within 30 days after the expiration
of the 60-day period and request that the fair value be determined by the Court.
If no dissenter files such an application, then each dissenter entitled to do so
shall be paid ISCG's estimate of the fair value of the dissenters' shares and no
more, and may bring an action to recover any amount not previously remitted.
Holders of ISCG Common Stock considering exercising dissenters' rights
should recognize that the fair value of their shares determined by the Court
could be more than, the same as or less than the consideration they are entitled
to receive pursuant to the Reorganization Agreement if they do not exercise
dissenters' rights. The costs and expenses of valuation proceedings before the
Court, including the reasonable compensation and expenses of the appraiser
appointed by the Court, shall be determined by the Court and assessed against
the business corporation except that any part of the costs and expenses may be
apportioned and assessed as the Court deems appropriate against all or some of
the dissenters who are parties and whose action in demanding supplemental
payment the Court finds to be dilatory, obdurate, arbitrary, vexatious or in bad
faith. Fees and expenses of counsel and of experts for the respective parties
may be assessed as the Court deems appropriate against the corporation and in
favor of any or all dissenters if the corporation failed to comply substantially
with the requirements of this subchapter and may be assessed against either the
corporation or a dissenter, in favor of any other party, if the Court finds that
the party against whom the fees and expenses are assessed acted in bad faith or
in a dilatory, obdurate, arbitrary or vexatious manner in respect to the rights
provided by the PBCL. If the Court finds that the services of counsel for any
dissenter were of substantial benefit to other dissenters similarly situated and
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should not be assessed against the corporation, it may award to those counsel
reasonable fees to be paid out of the amounts awarded to the dissenters who were
benefited.
ISCG intends to negotiate in good faith with any dissenting shareholder. If
after negotiation, a claim cannot be settled, then ISCG intends to file an
application requesting that the fair value of the dissenters' shares be
determined by the Court.
NO FCG APPRAISAL RIGHTS
Holders of FCG Common Stock are not entitled to appraisal rights under the
DGCL because FCG is not a constituent corporation to the Merger under the DGCL.
RESALE OF FCG COMMON STOCK
FCG Common Stock issued in connection with the Merger will be freely
transferable, except that shares issued to an ISCG Affiliate or who becomes an
affiliate of FCG are subject to certain restrictions on resale. An affiliate is
defined generally as including, without limitation, directors, certain executive
officers and certain other persons who control a company. Pursuant to the terms
of the Reorganization Agreement, ISCG has delivered to FCG, ISCG Affiliate
Agreements executed by the ISCG Affiliates that prohibit the sale, exchange,
transfer, pledging, distribution or other disposition of or granting of any
option, establishment of any "short" or put-equivalent position with respect to
or any similar transaction (through derivatives or otherwise) intended or having
the effect, directly or indirectly, to reduce such ISCG Affiliate's risk
relative to: (i) any ISCG Common Stock (except pursuant to and upon consummation
of the Merger); or (ii) any FCG Common Stock received by such ISCG Affiliate in
the Merger or upon exercise of options assumed by FCG in the Merger, except
under certain circumstances, in order to comply with the requirements of certain
federal securities laws and to help ensure the Merger is treated as a pooling of
interest for accounting and financial reporting purposes. See "Approval of the
Merger and Related Transactions--Affiliate Agreements."
Pursuant to the terms of the Reorganization Agreement, FCG has delivered to
ISCG FCG Affiliate Agreements executed by the FCG Affiliates that prohibit the
sale, exchange, transfer, pledging, distribution or other disposition of or
granting of any option, establishment of any "short" or put-equivalent position
with respect to or any similar transaction (through derivatives or otherwise)
intended or having the effect, directly or indirectly, to reduce such FCG
Affiliate's risk relative to any FCG Common Stock except under certain
circumstances, so as to help ensure that the Merger will be accounted for as a
pooling of interests. See "Approval of the Merger and Related
Transactions--Affiliate Agreements."
Pursuant to the terms of the Reorganization Agreement, FCG has agreed to
enter into a registration rights agreement with David S. Lipson, Technology
Leaders II, Safeguard Scientifics, Inc. and the Warrant and Stock Trust (the
"Registration Rights Agreement") at the Closing, which grants the Holders
certain rights with respect to the registration under the Securities Act of
shares of FCG Common Stock issued to the Holders in connection with the Merger.
See "Approval of the Merger and Related Transactions-- Registration Rights
Agreement."
THE REORGANIZATION AGREEMENT
GENERAL
The following is a summary of the material provisions of the Reorganization
Agreement, a copy of which is attached as Appendix A to this Joint Proxy
Statement/Prospectus and is incorporated herein by reference. However, the
following is not a complete statement of all provisions of the Reorganization
Agreement and related agreements. Statements made in this Joint Proxy
Statement/Prospectus with respect to the terms of the Reorganization Agreement
and such related agreements are qualified in their
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respective entireties by reference to the more detailed information set forth in
the Reorganization Agreement and such related agreements. Capitalized terms used
in this summary but not defined in this Joint Proxy Statement/Prospectus shall
have the meanings ascribed to them in the Reorganization Agreement.
The Reorganization Agreement provides for the merger of Merger Sub with and
into ISCG. As a result of the Merger, Merger Sub will cease to exist, ISCG will
become a wholly-owned subsidiary of FCG, and the former shareholders of ISCG
will become stockholders of FCG. ISCG, as the Surviving Corporation, will retain
all of its separate corporate existence, with all its purposes, objects, rights,
privileges, powers and franchises unaffected by the Merger. Merger Sub has been
formed solely for the purpose of effecting the Merger, and there will be no
other activity in Merger Sub. The Merger will become effective at the Effective
Time, which shall be upon the filing of Articles of Merger with the Secretary of
State of the Commonwealth of Pennsylvania and the Certificate of Merger with the
Secretary of State of the State of Delaware or such later time as may be
specified in the Articles of Merger. The Effective Time shall occur no later
than the second day after the satisfaction or waiver of all the conditions to
closing set forth in the Reorganization Agreement. It is currently anticipated
that the Effective Time will occur on or before [ ], 1998. There can be no
assurance, however, that the conditions to the Merger will be satisfied by such
date, or at all, or that the Reorganization Agreement will not be terminated.
See "--Conditions to the Merger."
MERGER CONSIDERATION
ISCG COMMON STOCK. At the Effective Time, each share of ISCG Common Stock
then outstanding will be converted into the right to receive FCG Common Stock
based on the Exchange Ratio. The Exchange Ratio is currently 0.77, which will be
adjusted for any subsequent stock split, stock dividend, reverse stock splits
reclassification, recapitalization or similar transaction.
NO FRACTIONAL SHARES. No fractional shares of FCG Common Stock will be
issued in connection with the Merger, and no certificates for any such
fractional shares will be issued. In lieu of such fractional shares, any holder
of ISCG Common Stock (after aggregating all fractional shares of FCG Common
Stock issuable to such shareholder) will, upon surrender of such shareholder's
stock certificate(s) representing ISCG Common Stock to the American Stock
Transfer & Trust Company, transfer agent and registrar for FCG Common Stock and
exchange agent for purposes of the Merger (the "Exchange Agent"), be paid in
cash the dollar amount (rounded to the nearest whole cent), without interest,
determined by multiplying such fraction by the closing price of a share of FCG
Common Stock on Nasdaq on the "Closing Date" (as defined herein).
STOCK OPTIONS AND WARRANTS
STOCK OPTIONS. At the Effective Time, all outstanding options with respect
to ISCG Common Stock under ISCG's Amended and Restated Option Plan
(collectively, "ISCG Options") shall be converted into and become rights with
respect to FCG Common Stock, and FCG shall assume each such option in accordance
with the terms (as in effect as of the date of the Reorganization Agreement) of
the stock option plan under which it was issued and the stock option agreement
by which it is evidenced. From and after the Effective Time, (i) each ISCG
Option assumed by FCG may be exercised solely for shares of FCG Common Stock,
(ii) the number of shares of FCG Common Stock subject to each such ISCG Option
shall be equal to the number of shares of ISCG Common Stock subject to such ISCG
Option immediately prior to the Effective Time multiplied by the Exchange Ratio,
rounding down to the nearest whole share (with cash, less the applicable
exercise price, being payable for any fraction of a share), (iii) the per share
exercise price under each such ISCG Option shall be adjusted by dividing the per
share exercise price under such ISCG Option by the Exchange Ratio and rounding
up to the nearest cent, and (iv) any restriction on the exercise of any such
ISCG Option shall continue in full force and effect and the term,
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exercisability, vesting schedule and other provisions of such ISCG Option shall
otherwise remain unchanged.
WARRANTS. All rights with respect to ISCG Common Stock under warrants that
are then outstanding shall be converted into and become rights with respect to
FCG Common Stock, and FCG shall, subject to certain limitations, assume all such
warrants in accordance with the terms of such warrants. Each warrant assumed by
FCG (i) may be exercised solely for shares of FCG Common Stock, (ii) the number
of shares of FCG Common Stock subject to each warrant assumed shall be equal to
the number of shares of ISCG Common Stock subject to such warrant immediately
prior to the Effective Time multiplied by the Exchange Ratio, rounding down to
the nearest whole share (with cash, less the applicable exercise price, being
payable for any fraction of a share), (iii) the per share exercise price under
each warrant assumed shall be adjusted by dividing the per share exercise price
under the warrant by the Exchange Ratio and rounding up to the nearest cent (to
the extent permitted by the terms of the warrants and otherwise rounded or
without rounding as required by the terms of the particular warrant).
STOCK OWNERSHIP FOLLOWING THE MERGER
Based upon the number of shares of ISCG Common Stock issued and outstanding
as of the ISCG Record Date, an aggregate of approximately shares of FCG
Common Stock will be issued to security holders of ISCG. Based upon the number
of shares of FCG Common Stock issued and outstanding as of the FCG Record Date
(assuming no exercise of outstanding options, warrants or other rights to
purchase FCG Common Stock), the former holders of ISCG Common Stock would hold
and have voting power with respect to approximately % of FCG's total issued
and outstanding shares after consummation of the Merger.
CONVERSION OF SHARES; PROCEDURES FOR EXCHANGE OF CERTIFICATES
As soon as practicable after the Effective Time, the Exchange Agent will
mail to the registered holders of ISCG Common Stock (i) a letter of transmittal
and (ii) instructions for the use in effecting the surrender of valid
certificates representing shares of ISCG Common Stock (the "ISCG Stock
Certificates") in exchange for certificates representing FCG Common Stock. Upon
surrender of an ISCG Stock Certificate to the Exchange Agent for exchange,
together with a duly executed letter of transmittal and such other documents as
may reasonably be required by the Exchange Agent or FCG, the holder of such ISCG
Stock Certificate shall be entitled to receive in exchange therefor a
certificate representing the whole number of shares of FCG Common Stock that
such shareholder has the right to receive. No fractional shares of FCG Common
Stock will be issued in connection with the Merger, and no certificates for any
such fractional shares will be issued. See "--Merger Consideration--No
Fractional Shares."
If any ISCG Stock Certificate has been lost, stolen or destroyed, FCG may
require the owner of such lost, stolen or destroyed ISCG Stock Certificate to
provide an appropriate affidavit and to deliver a bond as indemnity against any
claim that may be made against the Exchange Agent, FCG or ISCG with respect to
such ISCG Stock Certificate.
ISCG SHAREHOLDERS SHOULD NOT SURRENDER THEIR ISCG STOCK CERTIFICATES FOR
EXCHANGE UNTIL THEY RECEIVE A LETTER OF TRANSMITTAL FROM THE EXCHANGE AGENT.
EFFECT ON CERTIFICATES
At the Effective Time, (i) all shares of ISCG Common Stock outstanding
immediately prior to the Effective Time will automatically be canceled and
retired and will cease to exist, and all holders of certificates representing
shares of ISCG Common Stock that were outstanding immediately prior to the
Effective Time will cease to have any rights as shareholders of ISCG, and (ii)
the stock transfer books of ISCG will be closed with respect to all shares of
ISCG Common Stock outstanding immediately prior to the Effective Time. No
further transfer of any such shares of ISCG Common Stock will be made on such
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stock transfer books after the Effective Time. If, after the Effective Time, an
ISCG Stock Certificate is presented to the Exchange Agent (or to ISCG or FCG),
such ISCG Stock Certificate will be canceled and will be exchanged as provided
above under the caption "--Conversion of Shares; Procedure for Exchange of
Certificates" and "--Merger Consideration."
CORPORATE MATTERS
As of the Effective Time, the Articles of Incorporation of the Surviving
Corporation will be amended and restated to conform to the Certificate of
Incorporation of Merger Sub as in effect immediately prior to the Effective Time
with the exception that the name of the Surviving Corporation shall be
Integrated Systems Consulting Group, Inc., and the Bylaws of the Surviving
Corporation will be amended and restated to conform to the Bylaws of the Merger
Sub as in effect immediately prior to the Effective Time. Immediately after the
Effective Time, the directors and officers of the Surviving Corporation shall be
the directors and officers of Merger Sub immediately prior to the Effective
Time.
CONDITIONS TO THE MERGER
FCG AND MERGER SUB. The obligations of FCG and Merger Sub to effect the
Merger and otherwise consummate the transactions contemplated by the
Reorganization Agreement are subject to the satisfaction, at or prior to the
Closing, of conditions, among others, to the following general effect:
(i) The representations and warranties of ISCG contained in
Reorganization Agreement shall be accurate in all material respects as of
the date of the Reorganization Agreement and as of the Closing Date as if
made on and as of the Closing Date except that any representations and
warranties qualified by "Material Adverse Effect" (as defined herein) or
other materiality qualifications are accurate in all respects as of the date
of the Reorganization Agreement and as of the Closing Date as if made on and
as of the Closing Date.
(ii) Each covenant or obligation that ISCG is required to comply with or
to perform at or prior to the Closing shall have been complied with and
performed in all material respects.
(iii) The Registration Statement shall have become effective in
accordance with the provisions of the Securities Act, and no stop order
shall have been issued by the Commission with respect to the Registration
Statement.
(iv) The Reorganization Agreement and the Merger shall have been duly
approved by the necessary vote of the ISCG shareholders, and the issuance of
FCG Common Stock in the Merger shall have been duly approved by the
necessary vote of the FCG stockholders. Fewer than 10% of the outstanding
shares of ISCG Common Stock shall be Dissenting Shares.
(v) All material consents required to be obtained in connection with the
Merger and the other transactions contemplated by the Reorganization
Agreement shall have been obtained and shall be in full force and effect.
(vi) FCG and Merger Sub shall have received the following agreements and
documents, each of which shall be in full force and effect: (A) a statement
from ISCG conforming to the requirements of Section 1.897-2(h)(2) of the
Treasury Regulations; (B) a letter from KPMG, dated as of the Closing Date
and addressed to FCG and ISCG reasonably satisfactory in form and substance
to FCG and Grant Thornton, to the effect that, after reasonable
investigation, KPMG is not aware of any fact concerning ISCG or any of its
shareholders or affiliates that could preclude FCG from accounting for the
Merger as a pooling of interests; (C) a letter from Grant Thornton, dated as
of the Closing Date and addressed to FCG, reasonably satisfactory in form
and substance to FCG, to the effect that, after reasonable investigation,
Grant Thornton is not aware of any fact concerning FCG or and of its
stockholders or affiliates that could preclude FCG from accounting for the
Merger as a pooling of interests; (D) a legal opinion of Cooley Godward,
dated as of the Closing Date and addressed to
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FCG, to the effect that the Merger will constitute a reorganization within
the meaning of Section 368 of the Code; (E) a certificate executed on behalf
of ISCG by its Chief Executive Officer confirming that the conditions set
forth in items (i), (ii), (iv), (v), (vii) and (viii) have been duly
satisfied; and (F) the written resignations of all officers and directors of
ISCG as of the Effective Time.
(vii) There shall have been no material adverse change in the business,
condition, assets, liabilities, operations or financial performance of ISCG
and its subsidiaries (the "Acquired Corporations") since the date of the
Reorganization Agreement.
(viii) ISCG shall have filed with the IRS a notification required under
Sections 1.897-2(h)(1)(i) and 1.897-2(h)(2) of the United States Treasury
Regulations ("Treasury Regulations").
(ix) The shares of FCG Common Stock to be issued in the Merger shall
have been authorized for listing on Nasdaq, subject to notice of issuance.
(x) No temporary restraining order, preliminary or permanent injunction
or other order preventing the consummation of the Merger shall have been
issued by any court of competent jurisdiction and remain in effect, and
there shall not be any legislation or regulation enacted or deemed
applicable to the Merger that makes consummation of the Merger illegal.
(xi) There shall not be pending or threatened any action, suit or
litigation brought by the United States Government or the European
Community, or any agency, commission, instrumentality, unit or body of the
United States Government or the European Community: (A) challenging or
seeking to restrain or prohibit the consummation of the Merger or any of the
other transactions contemplated by the Reorganization Agreement; (B)
relating to the Merger and seeking to obtain from FCG or any of its
subsidiaries any damages that may be material to FCG; (C) seeking to
prohibit or limit in any material respect FCG's ability to vote, receive
dividends with respect to or otherwise exercise ownership rights with
respect to the stock of the Surviving Corporation; or (D) which would
materially and adversely affect the right of FCG, the Surviving Corporation
or any subsidiary of FCG to own the assets or operate the business of ISCG.
(xii) There shall not be pending any action, suit or litigation in which
there is a reasonable possibility of an outcome that would have a Material
Adverse Effect on ISCG or any of its subsidiaries or on FCG: (A) challenging
or seeking to restrain or prohibit the consummation of the Merger or any of
the other transactions contemplated by the Reorganization Agreement; (B)
relating to the Merger and seeking to obtain from FCG or any of its
subsidiaries any damages that may be material to FCG; (C) seeking to
prohibit or limit in any material respect FCG's ability to vote, receive
dividends with respect to or otherwise exercise ownership rights with
respect to the stock of the Surviving Corporation; or (D) which would affect
adversely the right of FCG, the Surviving Corporation or any subsidiary of
FCG to own the assets or operate the business of ISCG.
ISCG. The obligations of ISCG to effect the Merger and otherwise consummate
the transactions contemplated by the Reorganization Agreement are subject to the
satisfaction, at or prior to the Closing, of conditions, among others, to the
following general effect:
(i) The representations and warranties of FCG and Merger Sub contained
in the Reorganization Agreement shall be accurate in all material respects
as of the date of the Reorganization Agreement and as of the Closing Date as
if made on and as of the Closing Date, except that any representations and
warranties qualified by Material Adverse Effect or other materiality
qualifications are accurate in all respects as of the date of the
Reorganization Agreement and as of the Closing Date as if made on and as of
the Closing Date.
(ii) All of the covenants and obligations that FCG and Merger Sub are
required to comply with or to perform at or prior to the Closing shall have
been complied with and performed in all material respects.
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(iii) The Registration Statement shall have become effective in
accordance with the provisions of the Securities Act, and no stop order
shall have been issued by the Commission with respect to the Registration
Statement.
(iv) The Reorganization Agreement and the Merger shall have been duly
approved by the necessary vote of the ISCG shareholders, and the issuance of
FCG Common Stock in the Merger shall have been duly approved by the
necessary vote of the FCG stockholders.
(v) ISCG shall have received the following agreements and documents: (A)
the Registration Rights Agreement executed by FCG and each of the persons
identified therein; (B) a legal opinion of Saul Ewing, dated as of the
Closing Date and addressed to ISCG, to the effect that the Merger will
constitute a reorganization within the meaning of Section 368 of the Code;
(C) a letter from KPMG, dated as of a date no earlier than three days prior
to the Closing Date and addressed to ISCG, reasonably satisfactory in form
and substance to FCG and Grant Thornton, to the effect that, after
reasonable investigation, KPMG is not aware of any fact concerning ISCG or
any of its shareholders or affiliates that could preclude FCG from
accounting for the Merger as a pooling of interests; (D) a letter from Grant
Thornton, dated as of a date no earlier than three days prior to the Closing
Date and addressed to FCG, reasonably satisfactory in form and substance to
FCG, to the effect that, after reasonable investigation, Grant Thornton is
not aware of any fact concerning FCG or and of its stockholders or
affiliates that could preclude FCG from accounting for the Merger as a
pooling of interests; and (E) a certificate executed on behalf of FCG by an
executive officer of FCG, confirming that conditions set forth in (i), (ii),
(iii) and (vi) have been satisfied.
(vi) There shall have been no material adverse change in the business,
condition, assets, liabilities, operations or financial performance of FCG
since the date of the Reorganization Agreement.
(vii) The shares of FCG Common Stock to be issued in the Merger shall
have been authorized for listing on Nasdaq, subject to notice of issuance.
(viii) No temporary restraining order, preliminary or permanent injunction
or other order preventing the consummation of the Merger by ISCG shall have
been issued by any court of competent jurisdiction and remain in effect, and
there shall not be any legislation or regulation enacted or deemed
applicable to the Merger that makes consummation of the Merger illegal.
For purposes of the Reorganization Agreement, an event, violation,
inaccuracy, circumstance or other matter will be deemed to have a "Material
Adverse Effect" on the Acquired Corporations if such event, violation,
inaccuracy, circumstance or other matter would have a material adverse effect on
(i) the business, condition, capitalization, assets, liabilities, operations or
financial performance of the Acquired Corporations taken as a whole, (ii) the
ability of ISCG to consummate the Merger or any of the other transactions
contemplated in the Reorganization Agreement or to perform any of its
obligations under the Reorganization Agreement, or (iii) the ability of FCG to
vote, receive dividends with respect to or otherwise exercise ownership rights
with respect to the stock of the Surviving Corporation. An event, violation,
inaccuracy, circumstance or other matter will be deemed to have a "Material
Adverse Effect" on FCG if such event, violation, inaccuracy, circumstance or
other matter would have a material adverse effect on the business, condition,
assets, liabilities, operations or financial performance of FCG and its
subsidiaries taken as a whole.
REPRESENTATIONS AND WARRANTIES
The Reorganization Agreement contains certain representations and
warranties, including, without limitation, representations and warranties by
ISCG as to: (i) due organization and subsidiaries; (ii) the articles of
incorporation of ISCG, as amended (the "ISCG Articles of Incorporation"), and
the bylaws of ISCG (the "ISCG Bylaws"); (iii) capitalization; (iv) filings with
the Commission and financial statements; (v) absence of certain changes; (vi)
real property, equipment and leaseholds; (vii) title to assets;
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(viii) receivables and significant customers; (ix) proprietary assets; (x)
material contracts; (xi) year 2000 liabilities; (xii) compliance with legal
requirements; (xiii) certain business practices; (xiv) governmental
authorizations; (xv) tax matters; (xvi) employee and labor matters and benefit
plans; (xvii) environmental matters; (xviii) insurance; (xix) transactions with
affiliates; (xx) legal proceedings and orders; (xxi) the authority and binding
nature of the Reorganization Agreement and the inapplicability of certain anti-
takeover statutes; (xxii) the absence of existing discussions or negotiations
concerning other acquisition proposals; (xxiii) accounting matters; (xxiv) the
vote required to approve the Merger and Reorganization Agreement; (xxv)
non-contravention and consents; (xxvi) the receipt of a fairness opinion from
Baird; (xxvii) brokers, finders and investment bankers and their fees or
commissions; and (xxviii) disclosure.
The Reorganization Agreement contains further representations and warranties
by FCG and Merger Sub as to: (i) due organization, standing and power to conduct
business; (ii) capitalization; (iii) filings with the Commission and financial
statements; (iv) disclosure; (v) absence of certain changes; (vi) authority and
binding nature of the Reorganization Agreement; (vii) non-contravention and
consents; (viii) vote required to approve the issuance of FCG Common Stock
pursuant to the Merger; (ix) valid issuance of the FCG Common Stock to be issued
pursuant to the Merger; (x) accounting matters; (xi) receipt of a fairness
opinion from Hambrecht & Quist; (xii) tax matters; (xiii) environmental matters;
(xiv) significant customers; and (xv) year 2000 liabilities.
COVENANTS
ACCESS AND INVESTIGATION. The Reorganization Agreement requires that during
the period from September 9, 1998 through the Effective Time (the "Pre-Closing
Period"), ISCG shall, and shall cause the respective representatives of the
Acquired Corporations to: (i) provide FCG and FCG's representatives with
reasonable access to the Acquired Corporations' representatives, personnel and
assets and to all existing books, records, tax returns, work papers and other
documents and information relating to the Acquired Corporations; and (ii)
provide FCG and FCG's representatives with such copies of the existing books,
records, tax returns, work papers and other documents and information relating
to the Acquired Corporations, and with such additional financial, operating and
other data and information regarding the Acquired Corporations, as FCG may
reasonably request. ISCG shall also promptly provide FCG with copies of: (i) any
written materials or communications sent by or on behalf of ISCG to its
shareholders; (ii) any material notice, document or other communication sent by
or on behalf of any of the Acquired Corporations to any party to any material
contract or sent to any of the Acquired Corporations by any party to any
material contract (other than any communication that relates solely to
commercial transactions between ISCG and the other party to any such material
contract and that is of the type sent in the ordinary course of business and
consistent with past practices); (iii) any notice, report or other document
filed with or sent to any governmental body in connection with the Merger or any
of the other transactions contemplated by the Reorganization Agreement; and (iv)
any material notice, report or other document received by any of the Acquired
Corporations from any governmental body.
CONDUCT OF ISCG'S BUSINESS. The Reorganization Agreement requires that
during the Pre-Closing Period, ISCG shall (i) conduct its business and
operations (A) in the ordinary course and in accordance with past practices and
(B) in compliance with all applicable legislation and regulations and the
requirements of all of its material contracts, (ii) use all reasonable efforts
to ensure that each of the Acquired Corporations preserves intact its current
business organization, keeps available the services of its current officers and
employees and maintains its relations and goodwill with all suppliers,
customers, landlords, creditors, licensors, licensees, employees and other
persons having business relationships with the respective Acquired Corporations,
(iii) keep in full force all of its insurance policies, (iv) provide all
notices, assurances and support required by any Acquired Corporation contract
relating to any proprietary asset in order to ensure that no condition under
such Acquired Corporation contract occurs which could result in, or could
increase the likelihood of, (A) any transfer or disclosure by any Acquired
Corporation of any source code materials or other Proprietary Asset, or (B) a
release from any escrow of any source code
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materials or other Proprietary Asset which have been deposited or are required
to be deposited in escrow under the terms of such Acquired Corporation Contract,
and (v) (to the extent requested by FCG) cause its officers to report regularly
to FCG concerning the status of ISCG's business.
During the Pre-Closing Period, ISCG shall not (without the prior written
consent of FCG), and shall not permit any of the other Acquired Corporations to:
(i) (A) declare, accrue, set aside or pay any dividend or make any other
distribution in respect of any shares of its capital stock, or (B)
repurchase, redeem or otherwise reacquire any shares of capital stock or
other securities;
(ii) sell, issue, grant or authorize the issuance or grant of (A) any
capital stock or other security, (B) any option, call, warrant or right to
acquire any capital stock or other security, or (C) any instrument
convertible into or exchangeable for any capital stock or other security
(except that ISCG may (I) issue ISCG Common Stock upon the valid exercise of
ISCG options or ISCG warrants outstanding as of the date of the
Reorganization Agreement and (II) in the ordinary course of business and
consistent with past practices, grant options exercisable into not more than
250 shares of ISCG Common Stock per newly-hired employee);
(iii) amend or waive any of its rights under, or accelerate the vesting
under, any provision of any of ISCG's stock option plans, any provision of
any agreement evidencing any outstanding stock option or any restricted
stock purchase agreement, or otherwise modify any of the terms of any
outstanding option, warrant or other security or any related contract;
(iv) amend or permit the adoption of any amendment to the ISCG Articles
of Incorporation or the ISCG Bylaws or other charter or organizational
documents, or, subject to the other terms of the Reorganization Agreement,
effect or become a party to any merger, consolidation, share exchange,
business combination, recapitalization, reclassification of shares, stock
split, reverse stock split or similar transaction;
(v) form any subsidiary or acquire any equity interest or other interest
in any other entity;
(vi) make any capital expenditure (except that the Acquired Corporations
may make capital expenditures that, when added to all other capital
expenditures made on behalf of the Acquired Corporations during the
Pre-Closing Period, do not exceed $50,000 with respect to any single capital
expenditure or $100,000 in the aggregate);
(vii) enter into or become bound by, or permit any of the assets owned or
used by ISCG to become bound by, certain material contracts, or amend or
prematurely terminate, or waive or exercise any material right or remedy
(including any right to repurchase shares of ISCG Common Stock) under,
certain material contracts;
(viii) acquire, lease or license any right or other asset from any other
person or sell or otherwise dispose of, or lease or license, any right or
other asset to any other person (except in each case for immaterial assets
acquired, leased, licensed or disposed of by ISCG in the ordinary course of
business and consistent with past practices), or waive or relinquish any
material right;
(ix) incur any indebtedness for borrowed money (other than: (A) in
connection with the financing of ordinary trade payables; (B) pursuant to
existing credit facilities; (C) in connection with leasing activities in the
ordinary course of business; or (D) for tax planning purposes in the
ordinary course of business) or guarantee any indebtedness of any person for
borrowed money, or issue or sell any debt securities or warrants or right to
acquire debt securities of any of the Acquired Corporations or guarantee any
debt securities of others;
(x) except in the ordinary course of business and consistent with past
practices, establish, adopt or amend any employee benefit plan, pay any
bonus except in accordance with the terms of such existing plans or pursuant
to commitments made prior to the date of the Reorganization Agreement,
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or make any profit-sharing or similar payment to, or increase the amount of
the wages, salary, commissions, fringe benefits or other compensation or
remuneration payable to, any of its directors, officers or employees;
(xi) grant any severance or termination pay to any officer or employee
except payments in amounts consistent with policies and past practices or
pursuant to written agreements outstanding, or policies existing, on the
date of the Reorganization Agreement and as previously disclosed in writing
or made available to FCG, or adopt any new severance plan;
(xii) hire any new employee having an annual base salary in excess of
$100,000 or as an officer of ISCG or engage any consultant or independent
contractor for period exceeding sixty days;
(xiii) change the status, title or responsibilities, including, without
limitation, termination or promotion, of any officer of ISCG or promote any
employee to an officer position in ISCG;
(xiv) transfer or license to any person or otherwise extend the term of
any agreement with respect to, amend or modify in any material adverse
respect any rights (including, without limitation, distribution rights) to
the Proprietary Assets of the Acquired Corporations, or enter into
assignments of future patent rights, other than non-exclusive licenses and
distribution rights in the ordinary course of business and consistent with
past practice;
(xv) sell, lease, license, encumber or otherwise dispose of any
properties or assets which are material, individually or in the aggregate,
to the business of ISCG, except in the ordinary course of business
consistent with past practice or lend funds to any third party (other than
intracompany loans and travel advances in the ordinary course of business);
(xvi) change any of its methods of accounting or accounting practices in
any respect;
(xvii) make any material election with respect to taxes;
(xviii) commence or settle any legal proceeding;
(xix) enter into any material transaction or take any other material
action outside the ordinary course of business or inconsistent with past
practices;
(xx) enter into any agreement requiring the consent or approval of any
third party with respect to the Merger; or
(xxi) agree or commit to take any of the actions described in clauses
"(i)" through "(xx)."
During the Pre-Closing Period, ISCG shall promptly notify FCG in writing of:
(i) the discovery by ISCG of any event, condition, fact or circumstance that
occurred or existed on or prior to the date of the Reorganization Agreement and
that caused or constitutes a material inaccuracy in any representation or
warranty made by ISCG in the Reorganization Agreement; (ii) any event,
condition, fact or circumstance that occurs, arises or exists after the date of
the Reorganization Agreement and that would cause or constitute a material
inaccuracy in any representation or warranty made by ISCG in the Reorganization
Agreement if (A) such representation or warranty had been made as of the time of
the occurrence, existence or discovery of such event, condition, fact or
circumstance, or (B) such event, condition, fact or circumstance had occurred,
arisen or existed on or prior to the date of the Reorganization Agreement; (iii)
any event, condition, fact or circumstance hereafter arising which, if existing
or occurring at the date of the Reorganization Agreement, would have been
required to be set forth or described in the disclosure schedule that has been
prepared by ISCG in accordance with the requirements of Section 9.6 of the
Reorganization Agreement and that has been delivered by ISCG to FCG on the date
of the Reorganization Agreement (the "ISCG Disclosure Schedule"); (iv) any
material breach of any covenant or obligation of ISCG; and (v) any event,
condition, fact or circumstance that would make the timely satisfaction of any
of the conditions to Closing impossible or unlikely or that has had or could
reasonably be expected to have a Material Adverse Effect on the Acquired
Corporations.
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If any event, condition, fact or circumstance that is required to be
disclosed by ISCG to FCG requires any change in the ISCG Disclosure Schedule, or
if any such event, condition, fact or circumstance would require such a change
assuming the ISCG Disclosure Schedule were dated as of the date of the
occurrence, existence or discovery of such event, condition, fact or
circumstance, then ISCG shall promptly deliver to FCG an update to the ISCG
Disclosure Schedule specifying such change. No such update shall be deemed to
supplement or amend ISCG Disclosure Schedule for the purpose of (i) determining
the accuracy of any of the representations and warranties made by ISCG in the
Reorganization Agreement, or (ii) determining whether any of the conditions to
FCG and Merger Sub's obligation to close has been satisfied.
NON-SOLICITATION. Pursuant to the Reorganization Agreement, ISCG has agreed
that it will not, directly or indirectly, and will not authorize or permit any
of the other Acquired Corporations or any representative of the Acquired
Corporations to, (i) solicit, initiate, encourage or induce the making,
submission or announcement of any Acquisition Proposal or take any action that
could be reasonably expected to lead to an Acquisition Proposal, (ii) furnish
any information regarding any of the Acquired Corporations to any person in
connection with or in response to an Acquisition Proposal, (iii) engage in
discussions with any person with respect to any Acquisition Proposal, (iv)
approve, endorse or recommend any Acquisition Proposal or (v) enter into any
letter of intent or similar document or any contract contemplating or otherwise
relating to any Acquisition Transaction. ISCG is not prevented, however, from
furnishing nonpublic information regarding the Acquired Corporations to, or
entering into discussions with, any person in response to a Superior Offer or
engaging in discussions with respect thereto if (i) neither ISCG nor any
representative of the Acquired Corporations shall has violated any of its
obligations against non-solicitation, (ii) the ISCG Board of Directors
determines in good faith, based upon the advice of its outside counsel, that
such action is required in order for the ISCG Board of Directors to comply with
its fiduciary duties under applicable law, (iii) prior to furnishing any
nonpublic information to, or entering discussions with any person, ISCG gives
FCG written notice of the identity of such person and of ISCG's intention to
furnish nonpublic information to, or enter into discussions with, such person,
and ISCG receives from such person an executed confidentiality agreement
containing customary limitations on the use and disclosure of all nonpublic
written and oral information furnished to such person by ISCG, and (iv) prior to
furnishing any such nonpublic information to, or entering into discussions with,
such person, ISCG furnishes such nonpublic information to FCG (to the extent
such nonpublic information has not been previously furnished by ISCG to FCG). In
addition to the foregoing, ISCG shall (A) provide FCG with at least 24 hours
prior notice of any meeting of ISCG's Board of Directors at which ISCG's Board
of Directors is reasonably expected to consider a Superior Offer and (B) not
recommend a Superior Offer to its shareholders for a period of not less than the
greater of two business days or 48 hours after FCG's
receipt of a copy of such Superior Offer.
An "Acquisition Proposal" is any offer or proposal contemplating or
otherwise relating to any "Acquisition Transaction." An "Acquisition
Transaction" is any transaction or series of related transactions involving: (i)
any merger, consolidation, share exchange, business combination, issuance of
securities, acquisition of securities, tender offer, exchange offer or other
similar transaction (A) in which any of the Acquired Corporations is a
constituent corporation, (B) in which any person or "group" (as defined in the
Securities and Exchange Act of 1934, as amended (the "Exchange Act") and the
rules thereunder) of persons directly or indirectly acquires ISCG or more than
50% of the Company's business or directly or indirectly acquires beneficial or
record ownership of securities representing more than 20% of the outstanding
securities of any class of voting securities of any of the Acquired Corporation,
or (C) in which any of the Acquired Corporations issues securities representing
more than 20% of the outstanding securities of any class of voting securities of
ISCG; (ii) any sale, lease, exchange, transfer, license, acquisition or
disposition of more than 50% of the assets of ISCG; or (iii) any liquidation or
dissolution of ISCG.
A "Superior Offer" is an unsolicited, bona fide written offer made by a
third party to purchase more than 50% of the outstanding shares of ISCG Common
Stock on terms that the ISCG Board of Directors
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determines, in its reasonable judgment, based upon the written advice of its
financial advisor, to be more favorable to ISCG's shareholders than the terms of
the Merger, except that no such offer shall be deemed to be a "Superior Offer"
if any financing required to consummate the transaction contemplated by such
offer is not committed and is not likely to be obtained by such third party on a
timely basis.
MEETINGS OF SHAREHOLDERS AND STOCKHOLDERS. Pursuant to the Reorganization
Agreement, ISCG will take all action necessary in accordance with applicable law
to convene and hold the ISCG Special Meeting to vote upon the approval of the
Reorganization Agreement and the Merger. ISCG's obligation to call, give notice
of, convene and hold the ISCG Special Meeting will not be limited or otherwise
affected by the commencement, disclosure announcement or submission to ISCG of
an Acquisition Proposal or by the withdrawal, amendment or modification of the
recommendation of the ISCG Board of Directors with respect to the Merger.
Pursuant to the Reorganization Agreement, FCG will take all action necessary to
call, give notice of, convene and hold the FCG Special Meeting to vote upon the
issuance of FCG Common Stock in the Merger.
Neither the board of directors of ISCG or FCG nor any committee thereof is
permitted to withdraw, amend or modify, or propose or resolve to withdraw, amend
or modify, in a manner adverse to the other party, its recommendations in favor
of the Reorganization Agreement and the Merger in the case of ISCG, and the
issuance of FCG Common Stock in the case of FCG. However, notwithstanding the
foregoing, the ISCG Board of Directors will not be prevented from withdrawing,
amending or modifying its unanimous recommendation in favor of the Merger if (i)
a Superior Offer is made to ISCG and is not withdrawn, (ii) neither ISCG nor any
of its representatives has violated the covenants given by them concerning non-
solicitation and (iii) the ISCG Board of Directors concludes in good faith,
based upon the advice of its outside counsel, that, in light of such Superior
Offer, the withdrawal, amendment or modification of such recommendation is
required in order for the ISCG Board of Directors to comply with its fiduciary
obligations.
CONDITIONS RELATING TO STOCK OPTIONS AND WARRANTS. For a description of the
treatment of stock options and warrants to purchase ISCG Common Stock, see the
caption above entitled "--Stock Options and Warrants."
FORM S-8. Pursuant to the Reorganization Agreement, FCG has agreed to file
a registration statement on Form S-8 for the shares of FCG Common Stock issuable
with respect to assumed ISCG Options as soon as reasonably practical, and in any
event within 60 days, after the Effective Time.
NOMINATION AND APPOINTMENT OF DIRECTORS. As soon as practicable after the
Effective Time, FCG shall use reasonable efforts to nominate and appoint (i)
Warren V. Musser, or such other nominee designated by ISCG, to Class I of the
FCG Board of Directors to serve until the annual meeting of stockholders to be
held in 1999 and (ii) David S. Lipson, or such other nominee designated by ISCG,
to Class II of the FCG Board of Directors to serve until the annual meeting of
stockholders to be held in 2000.
ACCOUNTING TREATMENT; TAX FREE REORGANIZATION. Each of ISCG and FCG has
agreed (i) not to take any action during the Pre-Closing Period that would
adversely affect the ability of FCG to account for the Merger as a pooling of
interests, (ii) to use all reasonable efforts to attempt to ensure that none of
its affiliates (as that term is used in Rule 145 promulgated under the
Securities Act) takes any action that could adversely affect the ability of FCG
to account for the Merger as a pooling of interests and (iii) not to take any
action either prior to or after the Effective Time that would reasonably be
expected to cause the Merger to fail to qualify as a Reorganization.
INDEMNIFICATION AND INSURANCE. Pursuant to the Reorganization Agreement,
all rights to indemnification existing in favor of the persons serving as
directors or officers of ISCG as of the date of the Reorganization Agreement for
acts and omissions occurring prior to the Effective Time, as provided in the
ISCG Bylaws and as provided in any indemnification agreements between ISCG and
said officers and directors shall survive the Merger and shall be observed by
FCG and the Surviving Corporation for a
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period of not less than six years from the Effective Time. The Reorganization
Agreement also provides that from the Effective Time until the third anniversary
of the date on which the Merger becomes effective, the Surviving Corporation
shall maintain in effect, for the benefit of the persons serving as directors
and officers of ISCG as of the date of the Reorganization Agreement with respect
to acts or omissions occurring prior to the Effective Time, the lesser of (i)
the existing policy of directors' and officers' liability insurance maintained
by ISCG as of the date of the Reorganization Agreement (the "Existing Policy")
and (ii) the amount of coverage purchased by 150% of the amount of the last
annual premium paid by ISCG prior to the date of the Reorganization Agreement
for the Existing Policy; provided, however, that the Surviving Corporation may
substitute for the Existing Policy a policy or policies of comparable coverage.
CERTAIN OTHER COVENANTS. The Reorganization Agreement contains certain
other covenants including covenants relating to: (i) preparation and filing of
the Registration Statement; (ii) obtaining regulatory approvals; (iii) public
announcements; (iv) tax qualification and opinion back-up certificates; (v)
resignation of officers and directors of ISCG; (vi) listing of the FCG Common
Stock to be issued pursuant to the Merger on Nasdaq; and (vii) FIRPTA.
TERMINATION
The Reorganization Agreement may be terminated prior to the Effective Time
(whether before or after approval of the Reorganization Agreement and the Merger
by the ISCG shareholders):
(i) by mutual written consent duly authorized by the Boards of Directors
of the FCG and ISCG;
(ii) by either FCG or ISCG if the Merger shall not have been consummated
by January 31, 1999 (unless the failure to consummate the Merger is
substantially attributable to a failure to act on the part of the party
seeking to terminate the Reorganization Agreement to perform any material
obligation required to be performed by such party at or prior to the
Effective Time);
(iii) by either FCG or ISCG if a court of competent jurisdiction or other
governmental body shall have issued a final and non-appealable order, decree
or ruling, or shall have taken any other action, having the effect of
permanently restraining, enjoining or otherwise prohibiting the Merger;
(iv) by either FCG or ISCG if (A) the ISCG Special Meeting shall have
been held (either on the date for which such Meeting was originally
scheduled or pursuant to any permissible adjournment or postponement) and
(B) the Reorganization Agreement and the Merger shall not have been adopted
and approved at such meeting by the necessary vote of the ISCG shareholders
(provided that the right to terminate the Reorganization Agreement on this
basis shall not be available to ISCG where the failure to obtain shareholder
approval shall have been caused by the action or failure to act of ISCG and
such action or failure to act constitutes a material breach by ISCG of the
Reorganization Agreement);
(v) by FCG (at any time prior to the adoption and approval of the
Reorganization Agreement and the Merger by the necessary vote of the ISCG
shareholders) if a Triggering Event shall have occurred;
(vi) by either FCG or ISCG if (A) the FCG Special Meeting shall have
been held (either on the date for which such meeting was originally
scheduled or pursuant to any permissible adjournment or postponement) and
(B) issuance of the FCG Common Stock in the Merger shall not have been
approved at such meeting by the necessary vote of the FCG stockholders;
(vii) by FCG if any of ISCG's representations and warranties contained in
the Reorganization Agreement shall be or shall have become materially
inaccurate, or if any of ISCG's covenants contained in the Reorganization
Agreement shall have been breached in any material respect; provided,
however, that if an inaccuracy in ISCG's representations and warranties or a
breach of a covenant by ISCG is curable by ISCG and ISCG is continuing to
exercise all reasonable efforts to cure
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such inaccuracy or breach, then FCG may not terminate the Agreement on this
basis on account of such inaccuracy or breach; or
(viii) by ISCG if any of FCG's representations and warranties contained in
the Reorganization Agreement shall be or shall have become materially
inaccurate, or if any of FCG's covenants contained in the Reorganization
Agreement shall have been breached in any material respect; provided,
however, that if an inaccuracy in FCG's representations and warranties or a
breach of a covenant by FCG is curable by FCG and FCG is continuing to
exercise all reasonable efforts to cure such inaccuracy or breach, then ISCG
may not terminate the Reorganization Agreement on this basis on account of
such inaccuracy or breach.
A "Triggering Event" shall be deemed to have occurred if: (i) the ISCG Board
of Directors shall have failed to recommend, or shall for any reason have
withdrawn or shall have amended or modified in a manner adverse to FCG its
unanimous recommendation in favor of, the adoption and approval of the
Reorganization Agreement or the approval of the Merger; (ii) ISCG shall have
failed to include in this Joint Proxy Statement/Prospectus the unanimous
recommendation of the ISCG Board of Directors in favor of the adoption and
approval of the Reorganization Agreement and the approval of the Merger; (iii)
the ISCG Board of Directors fails to reaffirm its unanimous recommendation in
favor of the adoption and approval of the Reorganization Agreement and the
approval of the Merger within five business days after FCG requests in writing
that such recommendation be reaffirmed; (iv) the ISCG Board of Directors shall
have approved, endorsed or recommended any Acquisition Proposal; (v) ISCG shall
have entered into any letter of intent of similar document or any contract
relating to any Acquisition Proposal; (vi) ISCG shall have failed to hold the
ISCG Special Meeting as promptly as practicable and in any event within 45 days
after the Registration Statement of which this Joint Proxy/Statement Prospectus
forms a part is declared effective under the Securities Act; (vii) a tender or
exchange offer relating to securities of ISCG shall have been commenced and ISCG
shall not have sent to its securityholders, within ten business days after the
commencement of such tender or exchange offer, a statement disclosing that ISCG
recommends rejection of such tender or exchange offer; (viii) an Acquisition
Proposal is publicly announced, and ISCG (A) fails to issue a press release
announcing its opposition to such Acquisition Proposal within five business days
after such Acquisition Proposal is announced or (B) otherwise fails to actively
oppose such Acquisition Proposal; or (ix) ISCG breaches or is deemed to have
breached any of its non-solicitation obligations under the Reorganization
Agreement.
EXPENSES AND TERMINATION FEES
Pursuant to the Reorganization Agreement, all fees and expenses incurred in
connection with the Reorganization Agreement and the transactions contemplated
by the Reorganization Agreement shall be paid by the party incurring such
expenses, whether or not the Merger is consummated; provided, however, that FCG
and ISCG shall share equally all fees and expenses, other than attorneys' fees,
incurred in connection with the printing and filing of this Joint Proxy
Statement/Prospectus and any amendments or supplements thereto.
If the Reorganization Agreement is terminated by FCG or ISCG pursuant to
item (v) under the caption "--Termination" above, then ISCG shall pay to FCG, in
cash, a nonrefundable fee equal to $5,000,000 (the "Termination Fee").
If the Reorganization Agreement is terminated by ISCG or FCG pursuant to
item (iv) under the caption "--Termination" above and an Acquisition Transaction
is consummated or a proposed Acquisition Transaction is publicly announced at
anytime prior to the first anniversary of the date of the Reorganization
Agreement, ISCG shall pay to FCG the Termination Fee contemporaneously with the
earlier of the consummation of such Acquisition Transaction or such announcement
regarding a proposed acquisition agreement.
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INFORMATION RELATING TO FCG
FCG BUSINESS
OVERVIEW
FCG provides operations improvement and information management services to
payors, providers, government agencies and other healthcare organizations in
North America and Europe. FCG's services are designed to increase its clients'
operations effectiveness in order to reduce cost, improve customer service and
enhance the quality of patient care. Operations effectiveness offers a means to
improve the financial, administrative and clinical processes within a client
organization. FCG's services address the increasing need for healthcare-specific
information technology expertise to objectively evaluate, select, implement and
manage an optimal set of information systems, networks and applications. FCG has
over 560 consultants who possess extensive expertise in key healthcare
financial, administrative and clinical processes, information technologies and
applications. FCG provides this expertise to clients by assembling
multi-disciplinary teams which provide comprehensive services across its four
principal services: consulting; software implementation; network and application
integration; and co-management services. FCG's services and consultants are
supported by internal research and a centralized information system which
provides real-time access to current industry and technology information and
project methodologies, experiences, models and tools. FCG believes that its
success is attributable to its strong relationships with industry leading
clients, the healthcare, technology and consulting expertise of FCG's
consultants, and the depth and breadth of its consulting services.
SERVICES
FCG's four principal services consist of consulting, software
implementation, network and application integration and co-management services.
FCG typically is engaged on an assignment-by-assignment basis and assembles
client teams from one or more services to match the expertise and service
offerings with the overall objectives required by each client and engagement.
Many client engagements involve multiple assignments. FCG may assemble several
client teams to serve the needs of a single client. FCG provides its services at
the client site to senior-level management and other personnel within the client
organization.
CONSULTING SERVICES
FCG's consulting services primarily consist of strategic planning,
operations effectiveness, procurement and contracting, and general consulting.
FCG's strategic planning services involve the development of strategic plans
for healthcare organizations encompassing one or more of the following areas:
the decision to purchase and implement large-scale clinical, patient information
or financial applications; the installation and integration of comprehensive
communications, network and other information technology systems; systems and
information architectures; and organizational and governance structures for
information technology departments. FCG believes that its strategic planning
services will continue to be the core of FCG's business as it provides a
foundation for the introduction of FCG's other services to clients and allows
FCG to develop multi-level relationships with its clients. FCG typically
provides its strategic planning services on a fixed-fee basis.
The goal of each strategic plan is to enable the client to maximize the
value of its information technology investments and improve operations
effectiveness. To ensure that each plan addresses the strategic goals,
priorities and needs of the client, FCG's strategic planning process involves
the participation of several senior-level management personnel, clinicians,
physicians and other user groups within the client organization. FCG collects
information regarding the client's business strategies, information technology
applications and systems, the capabilities of the client's in-house technical
staff and the operational needs of user groups. FCG then identifies several
information and infrastructure needs which must be addressed in order to
implement the client's business strategies. FCG also develops a series of
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prioritized recommendations or assignments to be completed by the client during
the next three to five years. These recommendations may include such items as
the installation of packaged software applications or communication networks, or
the use of clinical repositories or outcomes systems. The strategic plan
delivered to the client describes the recommendations in detail and typically
includes specific information technology alternatives, internal staffing
recommendations and implementation schedules and budgets. FCG also assists the
client in building consensus with respect to a particular strategic objective or
assignment.
FCG's operations effectiveness services enhance its clients' performance
through financial, administrative and clinical process improvement. FCG believes
that information technology is the most important element in implementing a
successful business process redesign. Through its historic information
technology expertise and its emerging enterprise-level operations effectiveness
services, FCG provides the full set of skills required to address the increased
pressures facing its clients to reduce cost, improve customer service and
improve and measure quality of patient care. These services are closely
integrated with FCG's implementation and integration services to ensure that
clients receive maximum benefit from new systems installations.
FCG provides information technology procurement and contracting services
that assist its clients with rapidly identifying, selecting and contracting for
the optimal information technology applications, networks and systems. FCG's
procurement and contracting consultants operate independently of hardware and
software vendors and accordingly provide objective assessments and
recommendations with respect to information technology alternatives and pricing.
Using these services, a client can efficiently identify and select an
appropriate vendor-based alternative, balance competing interests within the
client organization and, in many instances, negotiate price discounts and other
terms which may be difficult to achieve without FCG's involvement. FCG does not
purchase and resell hardware or software to its clients. FCG's procurement and
contracting services support FCG's strategic planning, implementation and
integration services by assisting clients in selecting and contracting with
vendors who will provide the applications, networks or systems to be installed
at the client site. FCG's procurement and contracting services are often
provided as part of a client's larger information technology, networking or
operational initiatives which may involve the provision of FCG's other services.
FCG typically provides its procurement and contracting services on a per-hour
basis.
FCG's consultants typically assess the technical capabilities,
specifications and design philosophy of existing products and assist clients in
all stages of procurement such as system requirement assessment and definition,
procurement planning and management, requests for proposals, vendor evaluation
and selection and contract negotiation. FCG's procurement and contracting
services include such areas as clinical, patient, financial and managed care
systems, claims processing, outcomes systems, local area networks, wide area
networks, voice and video systems, electronic messaging, call centers, Internet
and web technologies and telemedicine.
FCG also provides general information management consulting services to its
existing clients on an as-needed basis in connection with industry trends and
developments, product introductions or changing regulatory requirements. FCG's
general consulting services typically are provided directly to senior-level
client personnel and involve small-scale, short duration assignments that are
important in maintaining strong client relationships.
SOFTWARE IMPLEMENTATION SERVICES
FCG provides implementation services for packaged software products utilized
by healthcare organizations. These services include project management,
installation, interface programming, testing and training services. In providing
these services, FCG draws on proven methodologies and its extensive expertise in
healthcare processes and information technology to ensure that each
implementation is completed efficiently with minimal disruption to clients'
operations. FCG's implementation specialists
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emphasize administrative and clinical process improvement and user training,
including technical support staff training, in each engagement. FCG typically
provides its implementation services on a fixed-fee per month or per-hour basis.
Through its implementation services, FCG believes that it enables its
clients to maximize the value of each application investment. FCG typically
assembles a dedicated, on-site, multi-disciplinary team of consultants to
perform each implementation engagement. This team determines implementation
schedules and budgets with the client. FCG's implementation specialists may also
provide project management, quality assurance or an interface mapping and
programming function through which FCG efficiently installs the application and
ensures that, once installed, the application will communicate with other
applications and networks used by the client. This interface mapping and
programming function often requires that FCG develop a considerable amount of
additional software code. Training of client personnel involves all aspects of
the complete system. FCG has extensive expertise in implementing applications
from vendors such as Cerner Corporation, Erisco Systems, HBO & Company, IDX
Systems Corp., Medic Computer Systems, Inc., MedicaLogic, Inc., Meditech, Inc.,
PHAMIS Inc., PeopleSoft, Inc. and Shared Medical Systems Corporation. FCG
believes that its expertise with and independence from application vendors
provides clients with an objective, reliable resource to implement these
applications.
NETWORK AND APPLICATION INTEGRATION SERVICES.
FCG designs and develops comprehensive system architectures,
infrastructures, interfaces, databases, applications and networks to address the
need for information integration and dissemination throughout a healthcare
organization. FCG's network and application integration services emphasize
scalable architectures and systems that can accommodate an increasing array of
functions and features to address a client's emerging information needs. FCG
often identifies specific technology and service alternatives for each clinical
and operational site within the client organization in the course of each
integration plan and engagement. FCG's integration services typically involve
FCG's procurement and contracting and implementation services in order to assist
the client in acquiring the needed hardware and software and, in some cases, to
install the acquired software as part of the integration plan. FCG typically
provides its network and application integration services on a fixed fee,
per-hour, or fixed-fee per month basis as negotiated in individual client
contracts.
FCG's network and application integration services are typically provided to
consolidated healthcare organizations, including integrated delivery networks
("IDNs") and health plans. Application integration assignments include the
development and implementation of master patient indices, computer-based patient
record systems, managed care and medical management systems, physician practice
management systems, clinical decision support and data repositories, and data
warehouses. Network integration assignments include the development of
information, technology and communication architectures and Internet, intranet
and desktop messaging systems. Network and application integration engagements
involve planning, designing and managing the installation and implementation of
hardware and software technologies. These engagements also involve comprehensive
site visits and user interviews, application programming and training across
multiple levels of a client organization. Often FCG prepares a detailed mapping
of physical, technical and operational elements of the integrated applications
or networks.
CO-MANAGEMENT SERVICES
FCG provides interim staffing for healthcare organizations primarily for
senior-level information technology positions such as Chief Information
Officers, Directors of Information Systems and information technology department
managers. FCG also provides information technology department outsourcing on a
temporary or permanent basis as determined by the client. FCG's co-management
services emphasize the importance of existing management and other information
technology personnel. Accordingly, FCG's personnel work with existing
information technology staff to address strategic business, information and
technology needs. FCG typically provides its co-management services on a
fixed-fee per month basis.
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SERVICE DELIVERY
FCG's services are provided by over 560 consultants who collectively have
expertise in key healthcare financial, administrative and clinical processes,
information technologies and applications. FCG believes that its healthcare
industry focus, information technology expertise, experienced consultants, and
research and practice support enable its clients to reduce cost, improve
customer service and enhance the quality of patient care.
To ensure client satisfaction, FCG typically assigns a Client Service
Executive to each client team. The Client Service Executive's primary
responsibility is to establish and maintain long-term relationships with
clients. The Client Service Executive regularly communicates with the client to
ensure client satisfaction and is also responsible for billing decisions on each
assignment. For client engagements with multiple independent assignments, FCG
assigns a Delivery Service Executive to each assignment. A Delivery Service
Executive has specific technology, process or service line expertise and is
responsible for supervising the daily functions of the client team and for
ensuring that the team's progress is consistent with the client's objectives and
schedule. FCG measures every client's satisfaction through a client satisfaction
survey completed at six month intervals during the engagement and again at the
conclusion of each assignment.
FCG employs consultants whose individual expertise combines healthcare,
information technology and consulting skills. FCG's consultants have developed
healthcare-specific expertise in key areas such as financial, administrative and
clinical processes, care management, clinical decision support, health plan
operations, medical and utilization management, outcomes and performance
management, physician practice management, ambulatory care and privacy and
confidentiality protection. FCG's consultants also have expertise in
implementing, integrating and developing a wide range of information technology
and management systems. These systems include packaged software applications,
client/server and object-oriented computing technologies, data repositories and
data warehousing, electronic commerce and electronic data imaging, networking,
web technologies, telemedicine, document management, security and disaster
recovery. FCG has expanded its recruiting efforts to ensure that it continues to
attract and retain the breadth and depth of skills and expertise necessary to
compete successfully in the healthcare consulting industry. FCG recruits and
retains its consultants by offering a combination of a growing healthcare
consulting practice, industry leading clients, intellectually challenging client
engagements and professional interaction and growth.
RESEARCH AND PRACTICE SUPPORT
FCG's services and consultants are supported by internal research, training
and a centralized information system which provides real-time access to current
industry and technology information and project methodologies, experiences,
models and tools. FCG's principal research and practice support initiatives
include the Emerging Practices Group, Professional Development Programs,
Scottsdale Institute, KITE and Practice Guilds.
EMERGING PRACTICES GROUP. The Emerging Practices Group performs industry
research and collects, packages and distributes knowledge regarding emerging
trends in the healthcare industry. Examples of topics that the Emerging
Practices Group has researched are information management practices in emerging
IDNs, process design and redesign for cross continuum care management, impact of
government legislation, physician integration, Internet and intranet in
healthcare, and use of hand-held computing devices. FCG documents research
findings, conducts internal and client workshops on these topics, and makes the
research available for use in its client engagements.
PROFESSIONAL DEVELOPMENT AND INCENTIVE PROGRAMS. FCG has instituted several
professional development and incentive programs to encourage employee retention
and to provide support for the professional growth of all employees. FCG
provides training to its employees through an annual four-day educational
retreat, as well as ongoing classroom education, computer-based training,
distance learning and external
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seminars. FCG has programs to educate all new employees about the history,
culture and practices of FCG. All employees are required to establish an annual
professional development plan for knowledge acquisition, skill development,
leadership assessment and training, project management and relationship
management. In addition to such programs, FCG encourages equity participation by
all employees. All vice presidents must purchase a multiple of their annual
salary in FCG Common Stock through the 1994 Restricted Stock Plan, as amended
(the "1994 Restricted Stock Plan"). See "Management--1994 Restricted Stock Plan
and Agreements." All other employees are eligible to participate in the
Associate 401(k) and Stock Ownership Plan (the "ASOP"), which matches 50% of
employee contributions with a contribution of FCG Common Stock by FCG. See
"Management- Associate 401(k) and Stock Ownership Plan."
SCOTTSDALE INSTITUTE. FCG's Scottsdale Institute is a membership
organization composed of more than 25 healthcare organizations across the United
States, typically represented by their Chief Executive Officers, Chief Operating
Officers or Chief Information Officers. Membership is by invitation only. The
Scottsdale Institute provides its members with a cost-sharing vehicle for
information exchange, problem-solving and learning related to improving
operations effectiveness through information management. The Emerging Practices
Group performs guided research projects in collaboration with groups of three to
five Scottsdale Institute member organizations that share common characteristics
and information management needs. The Emerging Practices Group delivers research
reports and tools to member organizations in areas such as management
techniques, organizational models, benchmarking and best practices,
methodologies, plans, and vendor information. This research enables FCG to
develop practical, applied solutions to problems of leading healthcare
organizations and to anticipate service needs of the broader market.
KNOWLEDGE AND INFORMATION TECHNOLOGY EXCHANGE. FCG's personnel have access
to FCG's internal research and to current industry and technology information
and project methodologies, experiences, models and tools through KITE. KITE
currently houses over 6,000 documents that include industry information, service
methodologies and tools, benchmarks and best practice information and other
documentation to support FCG's services and consultants. KITE is updated on a
continuous basis with information resulting from each engagement, by the
Emerging Practices Group, and by the Practice Guilds. FCG believes that this
resource allows its consultants to utilize engagement-specific information which
improves the quality and content of services delivered to clients while reducing
cost of delivery.
CLIENTS
In 1997, FCG provided services to over 360 clients consisting of providers,
payors and other healthcare organizations in North America and Europe. During
the first six months of 1998, FCG provided services to over 320 clients. FCG's
clients include leading IDNs, health plans, acute care centers, academic medical
centers, physician organization, governmental agencies and other organizations.
SALES AND MARKETING
FCG generates a substantial portion of its revenue from existing clients and
client referrals and markets its services primarily through its vice presidents.
FCG's vice presidents develop strong relationships with senior-level information
management and other decision-making personnel at leading healthcare
organizations, and are therefore positioned to market additional strategic and
information technology consulting services to FCG's existing clients. FCG
maintains these relationships by successfully completing assignments and meeting
clients' expectations. In particular, FCG believes that by successfully
completing strategic plans for new and existing clients, its vice presidents
will have significant opportunities to offer implementation and integration
services to these clients. FCG has demonstrated that this strategy leads to
expanded opportunities with its clients and referrals to new clients. In
providing its services, FCG attains an in-depth understanding of its client's
processes and internal information technology and business strategies. Through
this understanding, FCG plans to provide operations effectiveness services to a
greater portion of its client base. Operations effectiveness services involve
assessing, designing and improving
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financial, administrative and clinical process. FCG's vice presidents and
practice directors allocate a significant portion of their time to business
development and related activities. FCG also employs six specialists who are
responsible for new business development with targeted clients.
FCG is frequently engaged to provide multiple services throughout several
phases of a client's information technology system lifecycle, including
planning, procurement and contracting, implementation, integration and
management. As a result of this involvement, FCG's personnel often develop an
in-depth understanding of the client's systems and capabilities and develop
strong relationships with personnel within the client organization. These
relationships provide FCG with significant opportunities to undertake additional
assignments for each client.
In addition to generating assignments from existing clients, FCG attracts
new clients through its targeted marketing activities. FCG's marketing
activities include public speaking, publishing press releases and trade show
participation. FCG also maintains research reports and "white papers" on its web
site, along with other company and industry information. FCG's marketing staff
produces a number of sales support tools including presentations, brochures,
article reprints, descriptions of FCG's services and case studies.
INTERNATIONAL OPERATIONS
FCG has provided its consulting, implementation and integration services to
clients in Canada, Germany, France, Spain, Ireland, Mexico and the United
Kingdom, and maintains offices in Dublin, Ireland and London, Macclesfield and
Belfast, United Kingdom. On January 13, 1998, FCG completed the acquisition of a
small healthcare consulting firm in the United Kingdom, Greenhalgh and Company
Limited. On June 1, 1998, FCG completed the acquisition of all the assets and
hired all the employees of an application development firm, the Windrose Group,
based in Honduras. FCG believes that select international acquisitions will
enhance its ability to effectively serve clients in targeted international
markets.
FCG intends to expand its international consulting services, which will
require a significant amount of management's attention and FCG's human and
financial resources. FCG may establish additional international operations and
hire additional personnel. There can be no assurance that FCG will be able to
successfully recruit and retain the necessary number of highly skilled
consultants in each country in which it intends to conduct its operations. Any
inability to recruit and retain such employees could impair FCG's ability to
expand internationally and may have a material adverse effect on FCG's business,
financial condition and results of operations. In addition, there can be no
assurance that FCG will be able to establish international market demand for its
services. FCG's international business may be subject to a variety of risks,
including the difficulty of tailoring its services to individual countries'
healthcare market needs, currency fluctuations, potentially longer payment
cycles, potential difficulties in collecting international accounts receivable,
the enforcement of contractual obligations and intellectual property rights,
potentially adverse tax consequences, increased costs associated with
maintaining international marketing efforts, costs of localizing services in
international markets, adverse changes in regulatory requirements and possible
economic downturns outside of the United States. There can be no assurance that
such factors will not have a material adverse effect on FCG's future
international operations and, consequently, on its business, financial condition
and results of operations.
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EMPLOYEES
As of June 30, 1998, FCG had 707 employees, 53 of whom were vice presidents.
FCG's vice presidents are stockholders of FCG and are responsible for new
business development, client relationships, company leadership, service delivery
and the long-term strategy of FCG. FCG believes that its relationship with its
employees is good.
FACILITIES
FCG's headquarters is located in approximately 18,000 square feet of leased
office space in Long Beach, California. FCG also leases an aggregate of
approximately 87,000 square feet of office space in the following cities:
Oakland, California; Morristown, New Jersey; Bethesda, Beltsville and Baltimore,
Maryland; New York City, New York; Tampa, Florida; Detroit and Okemos, Michigan;
Houston and Dallas, Texas; Boston, Massachusetts; Pittsburgh, Pennsylvania;
Chicago, Illinois; Atlanta, Georgia; Seattle, Washington; Denver, Colorado;
Dublin, Ireland and London, Macclesfield and Belfast, United Kingdom; and
Tegucigalpa, Honduras. FCG is considering expansion of its headquarters leased
space in the Long Beach headquarters to accommodate future growth.
LEGAL PROCEEDINGS
From time to time, FCG may be involved in claims or litigation that arise in
the normal course of business. As of the date of this Prospectus, FCG is not a
party to any legal proceedings which, if decided adversely to FCG, would have a
material adverse effect on FCG's business, financial condition or results of
operations.
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FCG MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
"Selected Consolidated Financial Data" and the consolidated financial statements
and notes thereto contained elsewhere in this Joint Proxy Statement/Prospectus.
Except for the historical information contained herein, the discussion in this
Joint Proxy Statement/Prospectus contains certain forward-looking statements
that involve risks and uncertainties, such as statements of FCG's plans,
objectives, expectations and intentions. The cautionary statements made in this
Joint Proxy Statement/Prospectus should be read as being applicable to all
related forward-looking statements wherever they appear in this prospectus.
FCG's actual results could differ materially from those discussed here. Factors
that could cause or contribute to such differences include those discussed in
this section and the sections entitled "Risk Factors" and "FCG Business" as well
as those discussed elsewhere in this Joint Proxy Statement/Prospectus.
OVERVIEW
FCG provides information technology and other consulting services to payors,
providers and other healthcare organizations in North America and Europe. FCG's
services are designed to increase its clients' operations effectiveness in order
to reduce cost, improve customer service and enhance the quality of patient
care. FCG's services address the increasing need of its clients for
healthcare-specific information technology expertise to objectively evaluate,
select, implement and manage an optimal set of information systems and
infrastructures. FCG's consultants provide this expertise through
multi-disciplinary teams specifically formed to provide a unique solution for
each client. FCG believes that its success is attributable to its strong
relationships with industry-leading clients, the healthcare, technology and
consulting expertise of FCG's consultants, and the depth and breadth of its
consulting services.
FCG generates substantially all of its revenue from fees for professional
services. FCG typically bills for its services on an hourly, fixed-fee or
monthly fixed-fee basis as specified by the agreement with a particular client.
FCG establishes standard hourly rates for each level of consultant based on
several factors including industry and assignment-related experience, technical
expertise, skills and knowledge. For services billed on an hourly basis, fees
are determined by multiplying the amount of time expended on each assignment by
the hourly rate for the consultant(s) assigned to the engagement. Fixed fees are
established on a per-assignment or monthly basis and are based on several
factors such as the size, scope, complexity and duration of an assignment and
the number of consultants required to complete the assignment. Actual hourly or
fixed fees for an assignment may vary from the standard or historical rates
charged by FCG. For services billed on an hourly basis, FCG recognizes revenue
as services are performed. For services billed on a fixed fee basis, FCG
recognizes revenue using the percentage of completion method based on the amount
of time completed on each assignment versus the projected number of hours
required to complete such assignment. Revenue is recorded as incurred at
assignment rates net of unplanned adjustments for specific engagements.
Unplanned adjustments to revenue are booked at the time they are known. FCG may
obtain payment in advance of providing services. These advances are recorded as
deferred revenue and reflected as a liability on FCG's balance sheet.
Cost of services primarily consists of the salaries, bonuses and related
benefits of consultants, subcontractor expenses, and the costs of FCG's
supplemental executive retirement plan. General and administrative expenses
primarily consist of the costs attributable to: office space occupancy;
investments in FCG's information systems, research and practice support and
quality initiatives; salaries and expenses for executive management, financial
accounting and administrative personnel; recruiting fees and professional
development; and marketing, legal and other professional services.
In connection with the ASOP and certain non-qualified stock options granted
to FCG's vice presidents, FCG recognizes a compensation expense on its
consolidated statement of operations. The recurring portion of FCG's
compensation expense relating to stock issuances and the amortization of
deferred
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compensation is reflected in FCG's consolidated statements of operations as
general and administrative expenses or cost of services based on the function of
the employee to whom the charge relates. FCG currently grants all stock options
at fair market value. In connection with the ASOP, FCG matches employee 401(k)
contributions with shares of FCG Common Stock based on the fair market value of
the shares at the time matching contributions are made.
FCG's most significant expenses are its human resource and related salary
and benefit expenses. As of June 30, 1998, approximately 79% of FCG's 707
employees were consultants, and the salaries and benefits of such consultants
are recognized in FCG's cost of services. Non-billable employee salaries and
benefits are recognized as a component of general and administrative expenses.
FCG's cost of services as a percentage of revenue is directly related to its
consultant utilization, which is the ratio of total billable hours to available
hours in a given month. FCG manages consultant utilization by monitoring
assignment requirements and timetables, available and required skills, and
available consultant hours per week and per month. The number of consultants
staffed on an assignment will vary according to the size, complexity, duration
and demands of the assignment. Assignment terminations, completions and
scheduling delays may result in periods in which consultants are not optimally
utilized. An unanticipated termination of a significant assignment or an overall
lengthening of the sales cycle could result in a higher than expected number of
unassigned consultants and could cause FCG to experience lower margins. In
addition, the opening of new offices, expansion into new markets, and the hiring
of consultants in advance of client assignments have resulted and may continue
to result in periods of lower consultant utilization. During the second and
third quarters of 1996, FCG experienced a significant decrease in the
utilization of billable personnel. This decrease in utilization was primarily
attributable to the increased hiring of consultants and a failure by FCG to
assign underutilized consultants located in the central United States to
projects outside such region. FCG believes that this failure to re-assign
underutilized consultants was attributable to certain incentive programs which
have since been discontinued. This decrease in utilization, as well as certain
infrastructure upgrades, resulted in a decrease in net income in the second and
third quarters of 1996. There can be no assurance that such a decrease in
utilization or net income will not occur in the future.
FCG's effective tax rate has varied from period to period due to differences
between book and tax deductions associated with certain non-deductible operating
expenses, including certain compensation expenses related to the ASOP.
COMPARISON OF SIX MONTHS ENDED JUNE 30, 1998 AND 1997
NET REVENUE. FCG's net revenue increased to $60.4 million, or 44.4%, for
the six months ended June 30, 1998 from $41.8 million for the six months ended
June 30, 1997. This increase was primarily attributable to an increase in
revenue from FCG's implementation, operations effectiveness, and integration
services.
COST OF SERVICES. Cost of services increased to $33.4 million, or 35.0%,
for the six months ended June 30, 1998 from $24.7 million for the six months
ended June 30, 1997. The increase was primarily attributable to an increase in
the number of consultants. Cost of services as a percentage of revenue decreased
to 55.3% for the six months ended June 30, 1998 from 59.1% for the six months
ended June 30, 1997. This decrease was primarily attributable to increased
realization of standard fees and a higher proportion of billable associates to
total associates during the quarter ended June 30, 1998.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased to $20.7 million, or 46.5%, for the six months ended June 30, 1998
from $14.2 million for the six months ended June 30, 1997. General and
administrative expenses as a percentage of revenue increased to 34.3% for the
six months ended June 30, 1998 from 33.8% for the six months ended June 30,
1997. This increase was primarily attributable to an increase in FCG's hiring,
including increased hiring from its expansion into Europe.
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COMPENSATION EXPENSES RELATED TO STOCK ISSUANCES. Compensation expenses
related to stock issuances decreased to zero for the six months ended June 30,
1998 from $1.0 million for the six months ended June 30, 1997. This decrease was
attributable to the discontinuance of certain compensatory stock and option
issuances.
INTEREST INCOME, NET. Interest income, net of interest expense, increased
to $797,000 for the six months ended June 30, 1998 from $48,000 net expense for
the six months ended June 30, 1997. Interest income net of interest expense as a
percentage of revenue increased to 1.3% for the six months ended June 30, 1998
from (0.1%) for the six months ended June 30, 1997. This increase was primarily
attributable to the investment of net proceeds from FCG's initial public
offering in February 1998.
INCOME TAXES. Income taxes as a percentage of income before income taxes
decreased to 47.8% for the six months ended June 30, 1998 from 55.4% for the six
months ended June 30, 1997 due to a reduction in certain non-deductible
compensation related expenses partly offset by the existence of non-deductible
foreign losses in the current period. The provision of 47.8% for the six months
ended June 30, 1998 represents the new estimated tax rate for the 1998 fiscal
year. This increased estimated rate is due to an expectation of losses in FCG's
foreign operations which are not currently deductible in any jurisdiction.
COMPARISON OF THE YEARS ENDED DECEMBER 31, 1997 AND 1996
NET REVENUE. FCG's net revenue increased to $91.6 million, or 39.1%, for
the year ended December 31, 1997 from $65.8 million for the year ended December
31, 1996. This increase was primarily attributable to an increase in revenue
from FCG's implementation and integration services and an increase in consultant
utilization.
COST OF SERVICES. Cost of services increased to $53.5 million, or 31.5%,
for the year ended December 31, 1997 from $40.7 million for the year ended
December 31, 1996. The increase was primarily attributable to an increase in the
number of consultants. Cost of services as a percentage of revenue decreased to
58.5% for the year ended December 31, 1997 from 61.9% for the year ended
December 31, 1996. This decrease was primarily attributable to increased
utilization rates for FCG's consultants during the year ended December 31, 1997.
FCG believes that the increase in utilization rates was primarily attributable
to the discontinuation of certain incentive programs and the resulting
reallocation of billable resources to projects across geographic regions.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased to $31.7 million, or 33.8%, for the year ended December 31, 1997 from
$23.7 million for the year ended December 31, 1996. This increase was primarily
attributable to FCG's relocation to a larger corporate facility, expanded
marketing initiatives, expansion into the United Kingdom, and continued efforts
to enhance and improve FCG's internal infrastructure including upgrades to its
management information systems. General and administrative expenses as a
percentage of revenue decreased to 34.6% for the year ended December 31, 1997
from 36.0% for the year ended December 31, 1996.
COMPENSATION EXPENSES RELATED TO STOCK ISSUANCES. Compensation expenses
related to stock issuances increased to $6.1 million for the year ended December
31, 1997 from $588,000 for the year ended December 31, 1996. This increase was
primarily attributable to a $4.2 million non-cash charge associated with an
allocation of 568,000 shares of FCG Common Stock to employees pursuant to a
one-time modification of the ASOP and a non-recurring compensation expense of
$1.2 million resulting from the difference between estimated average fair market
value and cost of the allocated ASOP shares.
COMPARISON OF YEARS ENDED DECEMBER 31, 1996 AND 1995
NET REVENUE. FCG's net revenue increased to $65.8 million, or 37.9%, for
the year ended December 31, 1996 from $47.7 million for the year ended December
31, 1995. This increase was primarily
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attributable to an increase in revenue from implementation and integration
services and the expansion of such services to IDNs and health plans.
COST OF SERVICES. Cost of services increased to $40.7 million, or 53.5%,
for the year ended December 31, 1996 from $26.5 million for the year ended
December 31, 1995. This increase was primarily attributable to an increase in
the number of consultants. Cost of services as a percentage of revenue increased
to 61.9% for the year ended December 31, 1996 from 55.5% for the year ended
December 31, 1995. This increase was primarily attributable to a significant
decrease in utilization rates for consultants located in the central United
States. FCG believes that this decrease in utilization was attributable to
certain incentive programs which have since been discontinued.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased to $23.7 million, or 35.1%, for the year ended December 31, 1996 from
$17.5 million for the year ended December 31, 1995. This increase was primarily
attributable to an increase in the number of non-billable employees and expenses
relating to the improvement of FCG's infrastructure. General and administrative
expenses as a percentage of revenue decreased to 36.0% for the year ended
December 31, 1996 from 36.7% for the year ended December 31, 1995.
COMPENSATION EXPENSES RELATED TO STOCK ISSUANCES. Compensation expense
related to stock issuances increased to $588,000, or 52.7%, for the year ended
December 31, 1996 from $385,000 for the year ended December 31, 1995. This
increase was primarily attributable to stock options granted below fair market
value in 1996.
COMPARISON OF YEARS ENDED DECEMBER 31, 1995 AND 1994
NET REVENUE. FCG's net revenue increased to $47.7 million, or 58.9%, for
the year ended December 31, 1995 from $30.0 million for the year ended December
31, 1994. This increase was primarily attributable to an increase in the number
of new assignments and consultants and an increase in FCG's focus on working
with IDNs and health plans.
COST OF SERVICES. Cost of services increased to $26.5 million, or 57.2%,
for the year ended December 31, 1995 from $16.9 million for the year ended
December 31, 1994. The increase was primarily attributable to an increase in the
number of consultants. Cost of services as a percentage of revenue remained
relatively constant at 55.5% for the year ended December 31, 1995 from 56.1% for
the year ended December 31, 1994.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased to $17.5 million, or 77.5%, for the year ended December 31, 1995 from
$9.9 million for the year ended December 31, 1994. This increase was primarily
attributable to an increase in the number of non-billable employees, increased
recruiting and training expenses, continued geographical expansion and
investments in internal information technology systems. General and
administrative expenses as a percentage of revenue increased to 36.7% for the
year ended December 31, 1995 from 32.8% for the year ended December 31, 1994.
COMPENSATION EXPENSES RELATED TO STOCK ISSUANCES. Compensation expenses
related to stock issuances was $385,000 for the year ended December 31, 1995.
There was no corresponding expense in the prior period. This expense was
primarily attributable to stock options granted below fair market value in 1995.
LIQUIDITY AND CAPITAL RESOURCES
During the six months ended June 30, 1998, FCG generated cash flow from
operations of $5.8 million. During the six months ended June 30, 1998, FCG used
cash flow of approximately $2.2 million to purchase property and equipment,
including computer and related equipment and office furniture. Depreciation and
amortization expense for the six months ended June 30, 1998 was approximately
$1.4 million. During
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the six months ended June 30, 1998, FCG generated cash flow of $43.8 million
from financing activities. At June 30, 1998, FCG had working capital of $30.6
million and long term investments of $25.7 million. At December 31, 1997, FCG
had working capital of $9.3 million. The primary reason for the increase was the
completion of FCG's initial public offering in February 1998.
FCG has a revolving line of credit which allows FCG to borrow up to $6.0
million at an interest rate of the prevailing prime rate. The revolving line of
credit expires on December 31, 1998. There was no outstanding balance under the
line of credit at June 30, 1998. FCG has two term loan facilities ("Term Loan A"
and "Term Loan B"). Term Loan A is a $305,000 facility under which approximately
$257,000 was outstanding as of June 30, 1998. Term Loan A expires on July 1,
2003. Term Loan B is a $4.0 million facility under which approximately $440,000
was outstanding as of June 30, 1998. Term Loan B expires on December 4, 2001.
Term Loan A and Term Loan B bear interest at a rate per annum equal to the
prevailing prime rate plus 0.5%. All borrowings under FCG's credit facilities
are secured by FCG's accounts receivable and other rights to payment, general
intangibles and equipment. The line of credit agreement provides that FCG must
satisfy certain covenants and restrictions.
FCG MANAGEMENT AFTER THE MERGER
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of FCG (including directors to be
appointed after consummation of the Merger) and their ages as of October 5,
1998, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------------- --- -----------------------------------------------------------------
<S> <C> <C>
James A. Reep.................... 46 Chairman of the Board
Luther J. Nussbaum............... 51 Chief Executive Officer, Executive Vice President, Worldwide
Practice Support and Director
Steven Heck...................... 50 President, Executive Vice President, Practice and Director
Thomas A. Reep................... 42 Vice President, Finance and Chief Financial Officer
Richard N. Kramer................ 44 Vice President and Managing Director, Healthcare Delivery
Roy A. Ziegler................... 35 Vice President and Managing Director, Health Plans
Don M. Tompkins.................. 54 Vice President and Managing Director, Implementation Services
Michael R. Gorsage............... 46 Vice President and Managing Director, Network Integration
Services
Frank I. Mueller................. 49 Vice President and Managing Director, Europe
Erica L. Drazen.................. 51 Vice President and Managing Director, Emerging Practices
Roy W. Walters................... 51 Vice President and Managing Director, Quality Improvement
Paula K. Cowan................... 55 Vice President, Human Resources
Stanley R. Nelson(1)(2).......... 71 Director
Steven Lazarus(1)................ 66 Director
Stephen E. Olson(1)(2)........... 56 Director
Scott S. Parker.................. 62 Director
Jack O. Vance(2)................. 73 Director
Warren V. Musser(3).............. 71 Director
David S. Lipson(4)............... 54 Director
</TABLE>
- ------------------------
(1) Member of Audit Committee.
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(2) Member of Compensation Committee.
(3) Under the terms of the Reorganization Agreement, as soon as practicable
after the Effective Time, FCG shall use reasonable efforts to nominate and
appoint Mr. Musser, or such other nominee designated by ISCG, to Class I of
the FCG Board of Directors to serve until the annual meeting of stockholders
to be held in 1999.
(4) Under the terms of the Reorganization Agreement, as soon as practicable
after the Closing Date, FCG shall use reasonable efforts to nominate and
appoint Mr. Lipson, or such other nominee designated by ISCG, to Class II of
the FCG Board of Directors to serve until the annual meeting of stockholders
to be held in 2000.
JAMES A. REEP co-founded FCG in 1980 and has served as Chairman of the FCG
Board since December 1987. Mr. Reep served as Chief Executive Officer and
President from March 1991 to October 1998. Mr. Reep is a member of the Board of
Directors of New Era of Networks, Inc., which develops packaged solutions for
application integration. Mr. Reep also serves as a director of First Consulting
Group (UK) Ltd., First Consulting Group (Ireland) Ltd., and the Scottsdale
Institute, subsidiaries of FCG, and several non-profit organizations. From 1977
to 1980, Mr. Reep was a consultant at Arthur Andersen. Mr. Reep is the brother
of Thomas A. Reep, Chief Financial Officer of FCG. Mr. Reep received a B.A. from
California State University, Long Beach and an M.B.A. from the University of
Chicago.
DAVID S. LIPSON co-founded ISCG and has been Chairman of the ISCG Board of
Directors and ISCG's Chief Executive Officer, President and Treasurer since its
inception. Mr. Lipson has more than 30 years of industry experience in executive
management and sales and marketing. His previous employers include IBM, Control
Data Corporation, Dun & Bradstreet Computer Services, SunGard Data Systems Inc.
and Digital Equipment Corporation. Mr. Lipson currently serves as a director of
Prescient Systems.
LUTHER J. NUSSBAUM has served FCG as Chief Executive Officer since October
1998 and as Executive Vice President, Worldwide Practice Support since April
1995 and has been a director since November 1997. Prior to joining FCG Mr.
Nussbaum was the President of Nussbaum & Associates, a strategic and information
consulting firm, from 1993 to 1995. From 1989 to 1993, Mr. Nussbaum served as
President and Chief Executive Officer of Evernet Systems, Inc., a national
network systems integration company. From 1986 to 1989, Mr. Nussbaum was the
President and Chief Operating Officer of Ashton-Tate Corp., a microcomputer
software development company. Mr. Nussbaum serves as a director of First
Consulting Group (UK) Ltd. and First Consulting Group (Ireland) Ltd.,
subsidiaries of FCG, and four private entrepreneurial companies. Mr. Nussbaum
received a B.A. from Rhodes College and an M.B.A. from Stanford University.
STEVEN HECK has served FCG as President since October 1998 and as Executive
Vice President, Practice since April 1995 and as a director since April 1997.
Mr. Heck served as Vice President, Practice from April 1991 to March 1995. From
1990 to 1991, Mr. Heck served as Chief Information Officer of Evangelical Health
Systems. Mr. Heck served FCG as Vice President, Midwest Region from May 1987 to
December 1989. Prior to joining FCG, Mr. Heck was the Managing Partner of the
Great Lakes Health Care Practice at Price Waterhouse LLP from 1985 to 1987.
THOMAS A. REEP has served FCG as Vice President, Finance and Chief Financial
Officer since May 1980. Prior to joining FCG, Mr. Reep was an accountant with
Ernst & Young from 1977 to 1980. Mr. Reep is a certified public accountant in
the State of California. Mr. Reep serves as a director of a non-profit
organization. Mr. Reep is the brother of James A. Reep, Chairman, Chief
Executive Officer and President of FCG. Mr. Reep received a B.S. and an M.B.A.
from California State University, Long Beach.
RICHARD N. KRAMER has served FCG as Vice President and Managing Director,
Healthcare Delivery since January 1998. Mr. Kramer served as Vice President and
Managing Director, East Region from July 1995 to December 1997 and as Vice
President, East Region from January 1995 to June 1995. Prior to joining FCG, Mr.
Kramer was the National Partner for the Healthcare Information Technology
Practice at
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<PAGE>
KPMG from 1994 to 1995 and served in other capacities from 1983 to 1993. Mr.
Kramer received a B.A. from The Johns Hopkins University and an M.B.A. from
Columbia University Graduate School of Business.
ROY A. ZIEGLER has served FCG as Vice President and Managing Director,
Health Plans since January 1998. Mr. Ziegler served as Vice President and
Managing Director, West Region from January 1996 to December 1997 and as Vice
President of Managed Care from November 1993 to December 1995. Prior to joining
FCG, Mr. Ziegler was the Practice Director of the Health Management Initiative
in the Pacific Region at Andersen Consulting from 1992 to 1993 and served in
other capacities from 1984 to 1991. Mr. Ziegler received a B.S. from Pepperdine
University.
DON M. TOMPKINS has served FCG as Vice President and Managing Director,
Implementation Services since January 1994. Mr. Tompkins served as Vice
President from April 1993 to December 1996. Prior to joining FCG, Mr. Tompkins
was a General Manager of Network Computing Tools for Texas Instruments
Incorporated from 1990 to 1996. Mr. Tompkins received a B.S. from Chaminade
University of Honolulu.
MICHAEL R. GORSAGE has served FCG as a Vice President and Managing Director,
Network Integration Services since May 1991. Prior to joining FCG, Mr. Gorsage
was the National Director of Communications Technologies Consulting Services at
Price Waterhouse LLP from 1989 to 1991 and served in other capacities from 1984
to 1987. Mr. Gorsage received a B.S. from Northeast Louisiana University and an
M.B.A. from the University of Tampa.
FRANK I. MUELLER has served FCG as Vice President and Managing Director,
Europe since January 1997. Mr. Mueller served as Vice President from January
1988 to December 1996 and joined FCG as a Practice Director in November 1986.
Prior to joining FCG, Mr. Mueller was the President of Health Serv, a clinical
decision support systems company, from 1981 to 1985. Mr. Mueller received a B.A.
from the University of Southern California and an M.A. from California State
University, Long Beach.
ERICA L. DRAZEN has served FCG as Vice President and Managing Director,
Emerging Practices since September 1995, and served as a director from April
1997 to December 1997. Prior to joining FCG, Ms. Drazen was the Vice President
and Director of the Healthcare Information Systems Practice at Arthur D. Little,
Inc. from 1990 to 1995 and served in other capacities from 1969 to 1989. Ms.
Drazen received a B.S. from Tufts University, an M.S. from Massachusetts
Institute of Technology and an Sc.D. from the Harvard School of Public Health.
ROY W. WALTERS has served FCG as Vice President and Managing Director,
Quality Improvement since June 1996 and served as a director from April 1997 to
December 1997. Mr. Walters served as Vice President from March 1992 to May 1996.
Prior to joining FCG, Mr. Walters was a consultant in the Healthcare Group at
Andersen Consulting from 1975 to February 1992. Mr. Walters received a B.A. from
Cornell University and an M.H.A. from Duke University.
PAULA K. COWAN has served FCG as Vice President, Human Resources since March
1996. Prior to joining FCG, Ms. Cowan was a consultant for Meek and Associates,
a strategic compensation and performance management consulting firm, from 1992
to 1996 and served as Vice President of Human Resources for Ashton-Tate Corp.
from 1986 to 1992. Ms. Cowan received a B.A. and an M.A. from California State
University, Long Beach.
STANLEY R. NELSON has served FCG as a director since April 1997. From 1993
to August 1997, Mr. Nelson was the President of the Center for Clinical
Integration, Inc., the predecessor of the Scottsdale Institute, a subsidiary of
FCG. Since 1988, Mr. Nelson has been an independent healthcare consultant to
various organizations. Prior to 1988, Mr. Nelson served as the President and
Chief Executive Officer of the Henry Ford Healthcare Corp. in Detroit, Michigan
and, prior to that, the Abbott-Northwestern Hospital in Minneapolis, Minnesota.
Mr. Nelson currently serves as a director of the Scottsdale Institute, a
subsidiary of FCG. Mr. Nelson received a B.S. and an M.H.A. from the University
of Minnesota.
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<PAGE>
STEVEN LAZARUS has served FCG as a director since April 1997. Since 1986,
Mr. Lazarus has served as a senior principal of various venture capital funds
associated with ARCH Venture, including President and Chief Executive Officer of
ARCH Development Corporation and Managing Director of ARCH Venture Partners.
From 1986 to 1994, Mr. Lazarus served as the Associate Dean of the Graduate
School of Business of the University of Chicago. He currently serves as a
director of Amgen Inc., a biotechnology company, Primark Corporation, an
information services company, Illinois Superconductor Corporation, which
develops radio frequency equipment for the wireless communication industry, and
New Era of Networks, Inc., which develops packaged solutions for application
integration. Mr. Lazarus received a B.A. from Dartmouth College and an M.B.A.
from the Harvard University Graduate School of Business.
STEPHEN E. OLSON has served FCG as a director since April 1997. Since 1988,
Mr. Olson has served as Chairman of the Board of The Olson Company, a developer
of landmark residential communities within urban environments. Since 1992, Mr.
Olson has also served as Chairman of the Board of Flowline, Inc., a
high-technology company specializing in intelligent sensors and controls. Mr.
Olson serves as a director of several private companies. Mr. Olson received a
B.A. from the University of Redlands and an M.B.A. from Pepperdine University.
SCOTT S. PARKER has served FCG as a director since November 1997. He has
served as the President and Chief Executive Officer of Intermountain Health Care
since 1975. Mr. Parker serves as a director of First Security Corporation MMI
Companies, Inc., a community and commercial bank, and Questar Corporation, a
natural gas and energy services holding company. Mr. Parker received a B.A. from
the University of Utah and an M.H.A. from the University of Minnesota.
JACK O. VANCE has served FCG as a director since April 1997. Mr. Vance is
the Managing Director of Management Research, Inc., a management consulting
firm. From 1973 to 1989, Mr. Vance was the Managing Partner of the Los Angeles
office of McKinsey & Company and served on the Executive Committee of that
firm's Board of Directors from 1962 to 1989. Mr. Vance serves as a director of
International Rectifier Corporation, a supplier of power semiconductor
components, Semtech Corporation, a manufacturer of analog semiconductor
products, and several private companies. Mr. Vance received a B.S. from the
University of Louisville and an M.B.A. from the Wharton School of the University
of Pennsylvania.
WARREN V. MUSSER has served as Chairman of the Board and Chief Executive
Officer of Safeguard Scientifics, Inc. since 1953 and has served as a member of
its Executive Committee since 1972 and its Nominating Committee since 1976. Mr.
Musser serves as Chairman of the Board of Cambridge Technology Partners
(Massachusetts), Inc., as a director of Coherent Communications Systems
Corporation, CompuCom Systems, Inc., DocuCorp International, Inc., National
Media Corporation and Sanchez Computer Associates, Inc., and a trustee of
Brandywine Realty Trust. Mr. Musser also serves on a variety of civic,
educational and charitable Boards of Directors and serves as Vice
President/Development, Cradle of Liberty Council, Boy Scouts of America, as Vice
Chairman of The Eastern Technology Council, and as a Chairman of the
Pennsylvania Partnership on Economic Education. Mr. Musser received B.S. from
Lehigh University.
RECENT CHANGES IN MANAGEMENT
On October 5, 1998, FCG announced that Luther J. Nussbaum was appointed
Chief Executive Officer of FCG, and Steven Heck was appointed President and
Chief of the Professional Practice. In addition, FCG announced that its
three-member Office of the President was expanded to include five senior
executives. Such appointments were made upon news that James A. Reep is in
serious condition after being diagnosed on September 30, 1998, with cancer. Mr.
Reep will continue to serve as Chairman of the Board and an employee of the
Company.
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<PAGE>
BOARD COMPOSITION
FCG currently has authorized eight directors. In accordance with the terms
of the amended and restated certificate of incorporation, as amended, of FCG
(the "FCG Certificate of Incorporation"), the terms of office of the FCG Board
of Directors will be divided into three classes: Class I, whose term will expire
at the annual meeting of stockholders to be held in 1999; Class II, whose term
will expire at the annual meeting of stockholders to be held in 2000; and Class
III, whose term will expire at the annual meeting of stockholders to be held in
2001. The Class I directors are Stephen Olson and Steven Heck, the Class II
directors are Stanley R. Nelson, Luther J. Nussbaum and Jack O. Vance and the
Class III directors are Scott S. Parker, Steven Lazarus and James A. Reep. At
each annual meeting of stockholders after the initial classification, the
successors to directors whose term will then expire will be elected to serve
from the time of election and qualification until the third annual meeting
following election. In addition, the FCG Certificate of Incorporation provides
that the authorized number of directors may be changed only by resolution of the
FCG Board of Directors. Any additional directorships resulting from an increase
in the number of directors will be distributed among the three classes so that,
as nearly as possible, each class will consist of one-third of the directors.
This classification of the FCG Board of Directors may have the effect of
delaying or preventing changes in control or management of FCG. Although
directors of FCG may be removed for cause by the affirmative vote of the holders
of a majority of the FCG Common Stock, the FCG Certificate of Incorporation
provides that holders of two-thirds of the FCG Common Stock must vote to approve
the removal of a director without cause.
Under the terms of the Reorganization Agreement, as soon as practicable
after the Effective Time, FCG has agreed to use reasonable efforts to nominate
and appoint (i) Warren V. Musser, or such other nominee designated by ISCG, to
Class I of the FCG Board to serve until the annual meeting of stockholders to be
held in 1999, and (ii) David S. Lipson, or such other nominee designated by
ISCG, to Class II of the FCG Board to serve until the annual meeting of
stockholders to be held in 2000.
BOARD COMMITTEES
The Audit Committee of the FCG Board of Directors reviews the internal
accounting procedures of FCG and consults with, and reviews the services
provided by, FCG's independent auditors. The Compensation Committee of the FCG
Board of Directors reviews and recommends to the FCG Board of Directors the
compensation and benefits of all officers of FCG and reviews general policy
relating to compensation and benefits of employees of FCG. The Compensation
Committee also administers the issuance of stock options and other awards under
FCG's stock plans.
DIRECTOR COMPENSATION
FCG currently provides annual cash compensation in the amount of $10,000 to
directors for services in such capacity. Directors are also reimbursed for
certain expenses in connection with attendance at Board of Directors and
committee meetings. Directors receive automatic grants of nonstatutory stock
options under the 1997 Non-Employee Directors' Stock Option Plan and are
eligible for grants of nonstatutory stock options under the 1997 Equity
Incentive Plan. Currently, each non-employee director is required to purchase
and hold shares with an aggregate fair market value equal to the annual fees
paid to the directors under the Non-Employee Director Restricted Stock Plan.
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<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth certain information for the year ended
December 31, 1997, regarding the compensation of FCG's Chief Executive Officer
and each of the four most highly compensated executive officers of FCG whose
salary and bonus for such year were in excess of $100,000 on an annualized basis
(the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION(1)
------------------------------
ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION
- --------------------------------- ---- ---------- ---------
<S> <C> <C> <C>
James A. Reep
Chairman of the Board.......... $370,000 $ 120,435 $47,634(2)(3)
Luther J. Nussbaum
Chief Executive Officer and
Executive Vice President,
Worldwide Practice Support..... 315,000 127,533 49,009(3)
Steven Heck
President and Executive Vice
President, Practice............ 335,000 109,043 171,425(3)(4)
Don M. Tompkins
Vice President and Managing
Director, Implementation
Services....................... 315,000 110,250 57,328(3)
Richard W. Kramer
Vice President and Managing
Director, East Region.......... 315,000 99,225 44,560(3)
Roy A. Ziegler
Vice President and Managing
Director, West Region.......... 315,000 99,725 51,111(3)
</TABLE>
- ------------------------
(1) In accordance with the Commission rules, other annual compensation in the
form of perquisites and other personal benefits has been omitted where the
aggregate amount of such perquisites and other personal benefits constitutes
less than the lesser of $50,000 or 10% of the total annual salary and bonus
for the Named Executive Officer for the fiscal year.
(2) Reflects a premium of $28,674 paid by FCG for a life insurance policy of
which Mr. Reep is the beneficiary.
(3) Includes imputed interest on interest-free loans by FCG to each of the Named
Executive Officers (except Mr. Reep) for the purchase of shares of FCG
Common Stock under the 1994 Restricted Stock Plan, supplemental executive
retirement plan contributions made on behalf of each of the Named Executive
Officers (except Mr. Reep), and an allocation of 1,000 shares to each of the
Named Executive Officers' accounts under the ASOP at an aggregate valuation
of $7,443 per Named Executive Officer. Also includes FCG's 50% matching
contribution of FCG Common Stock under the ASOP for the account of Messrs.
Reep, Heck, Nussbaum, Tompkins, Kramer and Ziegler with an estimated
valuation of $11,517, $11,347, $11,517, $10,620, $11,202 and $11,517,
respectively. See "Information Relating To FCG--Certain Transactions of
FCG," and "Information Relating to FCG-- FCG Management's Discussion and
Analysis of Financial Condition and Results of Operations."
(4) Includes $90,700 in relocation expenses paid by FCG.
OPTION GRANTS IN LAST FISCAL YEAR
There were no stock options granted to Named Executive Officers for the year
ended December 31, 1997.
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<PAGE>
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
The following table sets forth for each of the Named Executive Officers the
shares acquired and the value realized on each exercise of stock options during
the fiscal year ended December 31, 1997. No Named Executive Officer held options
at December 31, 1997.
<TABLE>
<CAPTION>
SHARES VALUE
ACQUIRED ON REALIZED
NAME EXERCISE (#) ($)(1)
- --------------------------------- ------------- ----------
<S> <C> <C>
James A. Reep.................... -- --
Luther J. Nussbaum............... -- --
Steven Heck...................... 47,272 587,591
Don M. Tompkins.................. -- --
Richard N. Kramer................ 123,920 1,540,326
Roy A. Ziegler................... -- --
</TABLE>
- ------------------------
(1) Value realized is based on an initial public offering price of $13.00 per
share of FCG Common Stock, although at the time of grant the fair market
value of the FCG Common Stock was determined by the FCG Board of Directors
to be $4.76 per share. Amounts reflected are based on the assumed value
minus the exercise price multiplied by the number of shares acquired on
exercise and do not indicate that the optionee sold such stock.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The bylaws of FCG (the "FCG Bylaws") provide that FCG will indemnify its
directors and executive officers and may indemnify its other officers, employees
and other agents to the fullest extent permitted by Delaware law. FCG is also
empowered under the FCG Bylaws to enter into indemnification contracts with its
directors and officers and to purchase insurance on behalf of any person it is
required or permitted to indemnify. Pursuant to this provision, FCG expects to
enter into indemnification agreements with each of its directors and executive
officers.
FCG has obtained officer and director liability insurance with respect to
liabilities arising out of certain matters, including matters arising under the
Securities Act. In addition, the FCG Certificate of Incorporation provides that,
to the fullest extent permitted by Delaware law, FCG's directors will not be
liable for monetary damages for breach of the directors' fiduciary duty of care
to FCG and its stockholders. This provision in the FCG Certificate of
Incorporation does not eliminate the duty of care, and in appropriate
circumstances, equitable remedies such as an injunction or other forms of
non-monetary relief would remain available under Delaware law. Under current
Delaware law, a director's liability to FCG or its stockholders may not be
limited with respect to any breach of the director's duty of loyalty to FCG or
its stockholders, for acts or omissions not in good faith or involving
intentional misconduct, for knowing violations of law, for any transaction from
which the director derived an improper personal benefit, for improper
transactions between the director and FCG and for improper distributions to
stockholders and loans to directors and officers. This provision also does not
affect a director's responsibilities under any other laws such as the federal
securities laws or state or federal environmental laws.
There is no pending litigation or proceeding involving a director or officer
of FCG as to which indemnification is being sought, nor is FCG aware of any
pending or threatened litigation that may result in claims for indemnification
by any director or officer.
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<PAGE>
CERTAIN TRANSACTIONS OF FCG
FCG and its vice presidents have entered into certain agreements relating to
the issuance of FCG's securities. Under the provisions of the 1994 Restricted
Stock Plan, FCG's vice presidents have entered into Restricted Stock Agreements
("RSAs") that require each vice president to purchase a minimum number of shares
of FCG Common Stock. Shares of FCG Common Stock are purchased under the RSAs at
a price per share equal to the price as quoted on Nasdaq. On and prior to July
30, 1997, FCG also provided certain of its vice presidents with non-qualified
stock options to purchase shares of FCG Common Stock based on the number of
shares purchased under the RSAs. These options were granted with exercise prices
below the then-prevailing market value for shares of FCG Common Stock as
determined by an independent valuation firm. In connection with the RSAs and
stock option agreements entered into between FCG and its vice presidents FCG
has, from time to time, made certain loans to its vice presidents equal to the
following: (i) the aggregate purchase price for shares of FCG Common Stock
purchased by a vice president under the 1994 Restricted Stock Plan; (ii) the
aggregate exercise price for stock options exercised by a vice president in
connection with the 1994 Restricted Stock Plan; and (iii) the aggregate amount
of medicare and income taxes payable by a vice president as a result of the
exercise of stock options granted in connection with the 1994 Restricted Stock
Plan. The promissory notes evidencing such loans are generally non-recourse,
non-interest bearing, and have a stated term of ten years. FCG records a
compensation expense and FCG's vice presidents recognize income on the imputed
interest attributable to these notes. Shares of FCG Common Stock purchased under
the RSAs or pursuant to the exercise of stock options, for which purchase or
exercise a loan was granted, are pledged as security for the outstanding
principal amounts of the loans. Each vice president is required to pledge that
number of shares having a market value equal to 120% of the amount remaining due
under the loans. The RSAs require FCG's vice presidents to repay the outstanding
principal amounts of such loans at the greater of (i) one-tenth (1/10) of the
face amount of such loans, and (ii) one-half (1/2) of the vice presidents' net
after tax annual bonus. FCG's vice presidents may repay the outstanding
principal amounts in advance without penalty. As of December 31, 1997, all of
the outstanding options under these arrangements have been exercised and the
outstanding aggregate principal amount under these loans equaled approximately
$9.3 million. In the future, FCG plans to grant all stock options at market
value and to match employee 401(k) contributions with shares of FCG Common Stock
based on the market value of the shares at the time of grant.
FCG has an ongoing, non-contractual business relationship with First Ticket
Travel, whose sole proprietor is Fatima Reep, the wife of James A. Reep,
Chairman of the Board, and former Chief Executive Officer and President of FCG.
For the year ended December 31, 1997, FCG has purchased travel services from
First Ticket Travel in the amount of approximately $124,000.
FCG entered into a consulting agreement with Stanley R. Nelson on September
1, 1997. The agreement provides that Mr. Nelson will be paid up to a maximum of
$11,115 per month, for consulting services related to the administration of and
strategic planning for the Scottsdale Institute.
FCG has entered into indemnification agreements with its directors and
officers for the indemnification of and advancement of expenses to such persons
to the full extent permitted by law. FCG also intends to execute such agreements
with its future directors and officers.
FCG believes that the foregoing transactions were in its best interest. As a
matter of policy the transactions were, and all future transactions between FCG
and any of its officers, directors or principal stockholders will be, approved
by a majority of the independent and disinterested members of the FCG Board of
Directors, will be on terms no less favorable to FCG than could be obtained from
unaffiliated third parties and will be in connection with bona fide business
purposes of FCG.
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<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF FCG
The following table sets forth certain information regarding the beneficial
ownership of FCG Common Stock as of August 31, 1998, and as adjusted to reflect
the issuance of FCG Common Stock in connection with the Merger: (i) each
stockholder who is known by FCG to own beneficially more than 5% of FCG Common
Stock; (ii) each Named Executive Officer of FCG; (iii) each director of FCG; and
(iv) all directors and executive officers of FCG as a group. Unless otherwise
indicated, to the knowledge of FCG, all persons listed below have sole voting
and investment power with respect to their shares of FCG Common Stock, except to
the extent authority is shared by spouses under applicable law.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED(1)
-----------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT
- ----------------------------------------------------------------------------------------- ---------- -----------
<S> <C> <C>
James A. Reep (2)........................................................................ 2,880,000 18.08%
Associate 401(k) and Stock Ownership Plan (3)............................................ 1,589,544 9.98
Brent A. Hanson (4)...................................................................... 826,200 5.19
Thomas A. Reep (5)....................................................................... 632,872 3.97
Frank I. Mueller......................................................................... 301,896 1.90
Roy A. Ziegler (6)....................................................................... 207,616 1.30
Steven Heck (7).......................................................................... 173,142 1.09
Richard N. Kramer (8).................................................................... 167,292 1.05
Luther J. Nussbaum (9)................................................................... 135,120 *
Stanley R. Nelson........................................................................ 2,100 *
Steven Lazarus........................................................................... 2,100 *
Stephen E. Olson......................................................................... 2,100 *
Jack O. Vance............................................................................ 2,100 *
Scott S. Parker.......................................................................... 1,344 *
All executive officers and directors as a group (17 persons) (3)(10)..................... 5,104,726 32.05
</TABLE>
- ------------------------
* Represents beneficial ownership of less than 1% of the outstanding shares
of FCG Common Stock.
(1) Beneficial ownership is determined in accordance with the rules of the
Commission and generally includes voting or investment power with respect
to securities. Except as indicated by footnote, and subject to community
property laws where applicable, FCG believes, based on information
furnished by such persons, that the persons named in the table above have
sole voting and investment power with respect to all shares of FCG Common
Stock shown as beneficially owned by them. Percentage of beneficial
ownership is based on 15,925,602 shares of FCG Common Stock outstanding as
of August 31, 1998. Certain shares are subject to repurchase at the
original issuance price plus a growth factor. The growth factor is equal to
the average interest rate compounded quarterly which FCG pays to a
commercial lending institution in a calendar quarter (the "Growth Factor").
In the event FCG has no borrowings for a particular quarter, then the
Growth Factor shall be the prime rate on the first day of the quarter, as
announced in the Wall Street Journal or if the Wall Street Journal
discontinues such announcements, then it shall be the prime rate as
announced by Bank of America.
(2) The business address of the named stockholder is c/o First Consulting
Group, Inc., 111 West Ocean Blvd., 4th Floor, Long Beach, California 90802.
Of the shares held, 2,880,000 are held by the Reep Family LLC of which Mr.
Reep is the Managing Member.
(3) The business address of the named stockholder is c/o First Consulting
Group, Inc., 111 West Ocean Blvd., 4th Floor, Long Beach, California 90802.
The shares are held by Union Bank as trustee of the ASOP. FCG allocates
shares of FCG Common Stock as matching contributions to certain of its
executive officers. These executive officers have the right to acquire the
fair market value of the stock allocated to their respective accounts upon
termination of employment. Such stockholder also
93
<PAGE>
has the right to vote such shares of FCG Common Stock allocated under the
ASOP with respect to the approval or disapproval of any FCG merger or
consolidation, recapitalization, reclassification, liquidation,
dissolution, sale of substantially all assets of a trade or business, or
such similar transaction. Of the shares held by the ASOP, 9,180 shares have
been allocated to the accounts of the following named executive officers:
Steven Heck (1,520 shares); Richard N. Kramer (1,500 shares); Frank I.
Mueller (1,540 shares); James A. Reep (1,540 shares); Thomas A. Reep (1,540
shares) and Roy A. Ziegler (1,540 shares). All other executive officers as
a group have been allocated a total of 9,280 shares.
(4) The business address of the named stockholder is c/o First Consulting
Group, Inc., 6903 Rockledge Drive, Suite 920, Bethesda, Maryland 20817. The
shares are held by The Brent A. Hanson Inter Vivos Trust dated March 24,
1995, of which Mr. Hanson is trustee.
(5) The business address of the named stockholder is c/o First Consulting
Group, Inc., 111 West Ocean Blvd., 4th Floor, Long Beach, California 90802.
The shares are held by The Reep Family Inter Vivos Trust, dated May 27,
1992, of which Mr. Reep and his wife, Patricia A. Reep, are trustees. Of
the shares held, 73,864 are unvested shares as of October 30, 1998. Of such
unvested shares, 36,932 are subject to repurchase by FCG at a price equal
to $2.38 per share plus the Growth Factor and 36,932 shares are subject to
repurchase by FCG at a price equal to $4.76 per share plus the Growth
Factor.
(6) Of the shares held, 124,569 are unvested shares as of October 30, 1998. Of
such unvested shares, 30,594 are subject to repurchase by FCG at a price
equal to $0.44 per share plus the Growth Factor, 24,866 are subject to
repurchase by FCG at a price equal to $0.53 per share plus the Growth
Factor, 46,073 are subject to repurchase by FCG at a price equal to $0.57
per share plus the Growth Factor, and 23,036 are subject to repurchase by
FCG at a price equal to $2.80 per share plus the Growth Factor.
(7) Of the shares held, 19,238 are unvested shares as of October 30, 1998. Of
such unvested shares, 7,200 are subject to repurchase by FCG at a price
equal to $0.22 per share plus the Growth Factor, 5,656 are subject to
repurchase by FCG at a price equal to $0.53 per share plus the Growth
Factor, 4,254 are subject to repurchase by FCG at a price equal to $0.57
per share plus the Growth Factor and 2,128 are subject to repurchase by FCG
at a price equal to $2.80 per share plus the Growth Factor.
(8) Of the shares held, 117,104 are unvested as of October 30, 1998. Of such
unvested shares, 78,069 are subject to repurchase by FCG at a price equal
to $0.57 per share plus the Growth Factor and 39,035 are subject to
repurchase by FCG at a price equal to $2.80 per share plus the Growth
Factor.
(9) The shares are held by The Nussbaum Family Trust, a Revocable Living Trust
dated March 2, 1992, of which Mr. Nussbaum is a trustee. Of the shares
held, 94,583 are unvested shares as of October 30, 1998. Of such unvested
shares, 63,055 are subject to repurchase by FCG at a price equal to $0.57
per share plus the Growth Factor and 31,528 are subject to repurchase by
FCG at a price equal to $2.80 per share plus the Growth Factor.
(10) Of the shares held, 763,998 are unvested shares as of October 30, 1998. In
general, such unvested shares are subject to repurchase by FCG at a price
equal to the original purchase price plus the Growth Factor.
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<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF ISCG
The following table sets forth certain information regarding the beneficial
ownership of ISCG Common Stock as of August 31, 1998 by: (i) each shareholder
who is known by ISCG to own beneficially more than 5% of ISCG Common Stock; (ii)
the Chief Executive Officer of ISCG and each of the four most highly compensated
executive officers of ISCG; (iii) each director of ISCG; and (iv) all directors
and executive officers of ISCG as a group. Unless otherwise indicated, to the
knowledge of ISCG, all persons listed below have sole voting and investment
power with respect to all shares of ISCG Common Stock shown as beneficially
owned by them.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED
------------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT(1)
- --------------------------------------------------------------------------------------- ---------- ------------
<S> <C> <C>
David S. Lipson (2).................................................................... 2,917,879 36.1%
Technology Leaders II (3).............................................................. 1,209,955 14.7
<*>Safeguard</*> Scientifics, Inc. (4)................................................. 756,025 9.2
Warrant and Stock Trust (5)............................................................ 370,137 4.4
Melissa A. Clancey (6)................................................................. 18,300 *
David F. Elderkin (7).................................................................. 94,050 1.2
David D. Gathman (8)................................................................... 103,184 1.3
Edward P. Kaiserian (9)................................................................ 25,200 *
Jay M. Rose (10)....................................................................... 39,150 *
Victor E. Stambaugh (11)............................................................... 26,100 *
Frank Baldino, Jr., Ph.D. (12)......................................................... 8,000 *
Melvyn E. Bergstein (13)............................................................... 13,434 *
Donald R. Caldwell (14)................................................................ 15,390 *
Mark J. DeNino (15).................................................................... 2,032 *
David S. Fehr (16)..................................................................... 4,000 *
James L. Mann (17)..................................................................... 11,000 *
Donna J. Pedrick (18).................................................................. 3,000 *
Michael D. Stern (19).................................................................. 385,656 4.6
Edward S.J. Tomezsko, Ph.D. (20)....................................................... 16,100 *
All executive officers and directors as a group (16 persons) (21)...................... 3,682,475 43.1
</TABLE>
- ------------------------
* Represents beneficial ownership of less than 1% of the outstanding shares
of ISCG Common Stock.
(1) Solely for the purpose of the percentage ownership calculation for each
beneficial owner depicted herein, the number of shares of ISCG Common Stock
deemed outstanding (i) assumes there are 8,076,404 shares of ISCG Common
Stock outstanding as of August 31, 1998, and (ii) includes additional
shares issuable pursuant to options or warrants held by such owner that may
be exercised within 60 days after August 31, 1998, as set forth below.
Solely for the purpose of the percentage beneficial ownership calculation
for all executive officers and directors as a group, the aggregate number
of shares underlying all presently exercisable options held by such persons
is added to the total number of shares of ISCG Common Stock outstanding.
(2) The business address of the named shareholder is 575 East Swedesford Road,
Wayne, Pennsylvania 19087. Excludes 30,276 shares of ISCG Common Stock
outstanding and 339,861 shares of ISCG Common Stock issuable pursuant to a
warrant, which outstanding shares and warrant were transferred by Mr.
Lipson to the Warrant and Stock Trust. See footnotes (5) and (19). Mr.
Lipson disclaims beneficial ownership of such securities.
(3) The business address of the named shareholder is 800 The <*>Safeguard</*>
Building, 435 Devon Park Drive, Wayne, Pennsylvania 19087. Includes 169,931
shares of ISCG Common Stock issuable pursuant to warrants. Technology
Leaders II L.P. and Technology Leaders II Offshore C.V. are venture capital
funds that are required by their governing documents to make all
investment, voting
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and disposition actions in tandem. Technology Leaders II L.P. and
Technology Leaders II Offshore C.V. are referred to herein as "Technology
Leaders II." Of the 1,040,024 shares outstanding and 169,931 shares (the
"Derivative Shares") obtainable upon the exercise of the warrants owned by
Technology Leaders II, 579,605 shares and 94,703 Derivative Shares are
owned by Technology Leaders II L.P. and 460,419 shares and 75,228
Derivative Shares are owned by Technology Leaders II Offshore C.V.
Technology Leaders II Management L.P. ("TLM"), the sole general partner of
Technology Leaders II L.P. and the co-general partner of Technology Leaders
II Offshore C.V., exercises through its executive committee sole investment
and voting power with respect to the shares owned by these entities.
(4) The business address of the named shareholder is 800 The <*>Safeguard</*>
Building, 435 Devon Park Drive, Wayne, Pennsylvania 19087. Includes 169,931
shares of ISCG Common Stock issuable pursuant to a warrant. Shares are held
of record by <*>Safeguard</*> Scientifics (Delaware), Inc., a wholly-owned
subsidiary of <*>Safeguard</*> Scientifics, Inc. ("<*>Safeguard</*>"). Does
not include shares beneficially owned by Technology Leaders II, in which
<*>Safeguard</*> has a beneficial interest.
(5) The business address of the named shareholder is 510 Williamson Road,
Gladwyne, Pennsylvania 19035. Consists of 30,276 shares of ISCG Common
Stock outstanding and 339,861 shares of ISCG Common Stock issuable pursuant
to a warrant. See footnotes (2) and (19).
(6) Includes 8,500 shares of ISCG Common Stock issuable pursuant to exercisable
options.
(7) Includes 8,950 shares of ISCG Common Stock issuable pursuant to exercisable
options.
(8) Includes 75,084 shares of ISCG Common Stock issuable pursuant to
exercisable options.
(9) Includes 9,400 shares of ISCG Common Stock issuable pursuant to exercisable
options.
(10) Includes 28,150 shares of ISCG Common Stock issuable pursuant to
exercisable options.
(11) Includes 16,400 shares of ISCG Common Stock issuable pursuant to
exercisable options.
(12) Includes 3,000 shares of ISCG Common Stock issuable pursuant to
exercisable options.
(13) Includes 3,000 shares of ISCG Common Stock issuable pursuant to
exercisable options.
(14) Excludes 756,025 shares beneficially owned by <*>Safeguard</*>. Mr.
Caldwell serves as President and Chief Operating Officer of
<*>Safeguard</*>. Mr. Caldwell disclaims beneficial ownership of such
shares.
(15) Excludes 1,209,955 shares beneficially owned by Technology Leaders II. Mr.
DeNino is a General Partner and Managing Director of TLM and is a member
of TLM's eleven-person executive committee. Mr. DeNino disclaims
beneficial ownership of such shares.
(16) Includes 4,000 shares of ISCG Common Stock issuable pursuant to
exercisable options.
(17) Includes 3,000 shares of ISCG Common Stock issuable pursuant to
exercisable options.
(18) Includes 1,500 shares of ISCG Common Stock issuable pursuant to
exercisable options.
(19) Includes 30,276 shares of ISCG Common Stock outstanding and 339,861 shares
of ISCG Common Stock issuable pursuant to a warrant held by the Warrant
and Stock Trust, of which Mr. Stern is the sole trustee. Also includes 900
shares of ISCG Common Stock issuable pursuant to exercisable options.
(20) Includes 8,100 shares of ISCG Common Stock issuable pursuant to
exercisable options.
(21) Includes (i) an aggregate of 167,984 shares of ISCG Common Stock issuable
pursuant to exercisable options and (ii) 30,276 shares of ISCG Common
Stock outstanding and 339,861 shares of ISCG Common Stock issuable
pursuant to a warrant held by the Warrant and Stock Trust.
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<PAGE>
COMPARISON OF CAPITAL STOCK
DESCRIPTION OF FCG CAPITAL STOCK
The authorized capital stock of FCG consists of 50,000,000 shares of Common
Stock, $0.001 par value, and 10,000,000 shares of Preferred Stock, $0.001 par
value (the "FCG Preferred Stock"). As of the Record Date, there were [ ]
shares of FCG Common Stock outstanding held of record by [ ] stockholders.
FCG COMMON STOCK. The holders of FCG Common Stock are entitled to one vote
for each share held of record on all matters submitted to a vote of the
stockholders. The holders of FCG Common Stock are entitled to receive ratably
such dividends as may be declared by the FCG Board of Directors out of funds
legally available therefor. In the event of a liquidation, dissolution or
winding up of FCG, holders of FCG Common Stock are entitled to share ratably in
all assets remaining after payment of liabilities. Holders of FCG Common Stock
have no preemptive rights and no right to convert their FCG Common Stock into
any other securities. There are no redemption or sinking fund provisions
applicable to the FCG Common Stock. All outstanding shares of FCG Common Stock
are, and all shares of FCG Common Stock to be outstanding after the completion
of the Merger will be, fully-paid and nonassessable.
FCG PREFERRED STOCK. The FCG Board of Directors has the authority, without
further action by the stockholders, to issue up to 10,000,000 shares of FCG
Preferred Stock, in one or more series and to fix the rights, preferences,
privileges and restrictions thereof, including dividend rights, conversion
rights, voting rights, terms of redemption, liquidation preferences, sinking
fund terms and the number of shares constituting any series or the designation
of such series, without any further vote or action by stockholders. The issuance
of FCG Preferred Stock could adversely affect the voting power of holders of FCG
Common Stock and the likelihood that such holders will receive dividend payments
and payments upon liquidation and could have the effect of delaying, deferring
or preventing a change in control of FCG. FCG has no present plan to issue any
shares of FCG Preferred Stock.
DELAWARE GENERAL CORPORATION LAW AND CERTAIN CHARTER PROVISIONS. FCG is
subject to the provisions of Section 203 of the DGCL, an anti-takeover law. In
general, the statute prohibits a publicly held Delaware corporation from
engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
became an interested stockholder, unless the business combination is approved in
a prescribed manner. For purposes of Section 203, a "business combination"
includes a merger, asset sale or other transaction resulting in a financial
benefit to the interested stockholder, and an "interested stockholder" is a
person who, together with affiliates and employees, owns (or within three years
prior, did own) 15% or more of the corporation's voting stock.
The FCG Certificate of Incorporation and FCG Bylaws also require that, any
action required or permitted to be taken by stockholders of FCG must be effected
at a duly called annual or special meeting of the stockholders and may not be
effected by a consent in writing. In addition, special meetings of the
stockholders of FCG may be called only by the FCG Board of Directors, the
Chairman of the Board, the President of FCG, or by any person or persons holding
shares representing at least 10% of the outstanding capital stock of FCG. The
FCG Certificate of Incorporation also provides for a classified board and
specifies that the authorized number of directors may be changed only by
resolution of the FCG Board of Directors. These provisions may have the effect
of deterring hostile takeovers or delaying changes in control or management of
FCG. See "Management--Board Composition."
REGISTRATION RIGHTS. Pursuant to the Reorganization Agreement, FCG has
agreed to enter into the Registration Rights Agreement at Closing, which grants
the Holders certain rights with respect to the registration under the Securities
Act of shares of FCG Common Stock issued to the Holders in connection with the
Merger.
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<PAGE>
TRANSFER AGENT AND REGISTRAR. American Stock Transfer & Trust Company has
been appointed as the transfer agent and registrar for the FCG Common Stock.
DESCRIPTION OF ISCG CAPITAL STOCK
The authorized capital stock of ISCG consists of 25,000,000 shares of ISCG
Common Stock, par value $0.005 per share, and 500,000 shares of ISCG Preferred
Stock, par value $1.00 per share ("ISCG Preferred Stock"). As of the Record
Date, there were [ ] shares of ISCG Common Stock outstanding held of record
by [ ] shareholders and shares of ISCG Preferred Stock outstanding
and held of record by shareholders.
ISCG COMMON STOCK. The holders of ISCG Common Stock are entitled to one
vote for each share held of record on all matters submitted to a vote of
shareholders and do not have cumulative voting rights. Except as otherwise
required by law, all other matters are determined by a majority of the votes
cast. Holders of ISCG Common Stock are entitled to receive ratably such
dividends, if any, as may be declared by the ISCG Board of Directors out of
funds legally available therefor, subject to any preferential dividend rights of
outstanding ISCG Preferred Stock. Subject to the rights of holders of ISCG
Preferred Stock, upon the liquidation, dissolution or winding up of ISG, the
holders of ISCG Common Stock are entitled to receive ratably the net assets of
ISCG available after the payment of all debts and other liabilities. Holders of
the ISCG Common Stock have no preemptive, subscription, redemption or conversion
rights. The outstanding shares of ISCG Common Stock are fully paid and
nonasessable.
ISCG PREFERRED STOCK. ISCG, by resolution of the ISCG Board of Directors
and without any further vote or action by the shareholders, has the authority,
subject to certain limitations prescribed by law, to issue from time to time up
to an aggregate of 500,000 shares of ISCG Preferred Stock in one or more classes
or series and to determine the designation and the number of shares of any class
or series as well as the voting rights, preferences, limitations and special
rights, if any, of the shares of any such class or series, including the
dividend rights, dividend rates, conversion rights and terms, voting rights,
redemption rights and terms, and liquidation preferences. The issuance of ISCG
Preferred Stock may have the effect of delaying, deferring or preventing a
change of control of ISCG. As of the ISCG Record Date, there were no shares of
ISCG Preferred Stock outstanding, and ISCG has no plans to issue any shares of
ISCG Preferred Stock.
PENNSYLVANIA BUSINESS CORPORATION LAW. The PBCL expressly permits directors
of a corporation to consider the interests of constituencies other than
shareholders, such as employees, suppliers, customers and the community, in
discharging their duties. Further, the PBCL expressly provides that directors do
not violate their fiduciary duty solely by relying on shareholders' rights plans
or other antitakeover provisions of the PBCL.
The effect of these provisions may be to deter hostile takeovers at a price
higher than the prevailing market price for the ISCG Common Stock. In some
circumstances, certain shareholders may consider these antitakeover provisions
to have a disadvantageous effect. Tender offers or other non-open market
acquisitions of shares are frequently made at prices above the prevailing market
price of a company's shares. In addition, acquisitions of shares by persons
attempting to acquire control through market purchases may cause the market
price of the ISCG Common Stock to reach levels that are higher than would
otherwise be the case. These antitakeover provisions may discourage any or all
of such acquisitions, particularly those of less than all of the ISCG Common
Stock, and may thereby prevent certain holders of ISCG Common Stock from having
an opportunity to sell their shares at a temporarily higher market price.
PBCL contains four additional provisions that would have applied to ISCG had
the shareholders not opted out of these provisions. The shareholders of ISCG
amended the articles of incorporation on January 29, 1996 to opt out of the
"control transactions" provision, which provides for mandatory shareholder
notice of the acquisition of 20% of the voting power of a Pennsylvania
corporation and provides shareholders with the opportunity to demand "fair
value" for their shares upon acquisition of
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voting power; the "business combination" provision, which limits a corporation
from engaging in any merger or business combination with an interested
shareholder unless certain conditions have been met; the "control share"
provision, which limits the voting power of the shareholders owning 20% or more
of a corporation's voting stock, and the "disgorgement" provision, which permits
a corporation to recover profits resulting from the sale of shares in certain
situations, including those where an individual or group attempts to acquire at
least 20% of the corporation's voting shares.
TRANSFER AGENT AND REGISTRAR. The transfer agent and registrar for the ISCG
Common Stock is Chase Mellon Shareholder Services, L.L.C.
COMPARISON OF SHAREHOLDERS' RIGHTS
In connection with the Merger, the ISCG shareholders will be converting
their shares of ISCG Common Stock into shares of FCG Common Stock. FCG is a
Delaware corporation and ISCG is a Pennsylvania corporation, and the FCG
Certificate of Incorporation and the FCG Bylaws differ from the ISCG Articles of
Incorporation and the ISCG Bylaws in several significant respects. Because of
the differences between the DGCL and the PBCL, and the differences in the
charter documents of FCG and ISCG, the rights of a holder of FCG Common Stock
differ from the rights of a holder of ISCG Common Stock.
Below is a summary of some of the important differences between the DGCL and
the PBCL and the charter documents of FCG and ISCG. It is not practical to
summarize all of such differences in this Joint Proxy Statement/Prospectus, but
some of the principal differences which could materially affect the rights of
ISCG shareholders include the following:
SIZE OF THE BOARD OF DIRECTORS
In accordance with the DCGL, the FCG Certificate of Incorporation states
that the number of directors will be set exclusively by the FCG Board of
Directors and authorizes the FCG Board of Directors to change the number by
resolution. The number of directors of FCG is currently fixed at eight. The FCG
Board of Directors acting without stockholder approval may change such number.
Under the PBCL, the number of directors is fixed by, or in the manner
provided in the bylaws or, if not so fixed, the number of directors is the same
as that stated in the articles of incorporation or three if no number is so
stated. The ISCG Bylaws fix the number of directors at eleven directors. The
PBCL vests the authority to amend the bylaws to change the number of directors
in the board of directors, subject to the power of the shareholders to change
such action.
CLASSIFIED BOARD OF DIRECTORS
A classified board is one in which a certain number, but not all, of the
directors are elected on a rotating basis each year. The DGCL permits, but does
not require, a classified board of directors, pursuant to which the directors
can be divided into as many as three classes with staggered terms of office,
with only one class of directors standing for election each year. The FCG
Certificate of Incorporation provides for a classified board of directors with
three classes of directors.
Under the PBCL, a corporation is permitted to adopt a classified board;
provided, however, that if the directors are classified, each class must be as
nearly equal in number as possible, the term of office of at least one class
must expire in each year and the members of a class must not be elected for a
period longer than four years. In contrast to the FCG Certificate of
Incorporation, the ISCG Articles of Incorporation do not provide for a
classified board.
CUMULATIVE VOTING
In an election of directors under cumulative voting, each share of stock
normally having one vote is entitled to a number of votes equal to the number of
directors to be elected. A shareholder may then cast
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all such votes for a single candidate or may allocate them among as many
candidates as the shareholder may choose. Under the DGCL, cumulative voting in
the election of directors is not available unless specifically provided in the
certificate of incorporation. The FCG Certificate of Incorporation does not
provide for cumulative voting.
The PBCL provides that any shareholder is entitled to cumulate his votes in
the election of directors unless the articles of incorporation provide
otherwise. The ISCG Articles of Incorporation provide that the shareholders of
the corporation do not have any cumulative voting rights.
REMOVAL OF DIRECTORS
Under the DGCL, if a corporation has a classified board, the stockholders
may remove a director only for cause, unless the certificate of incorporation
provides otherwise. The FCG Certificate of Incorporation and the FCG Bylaws
provide that any and all directors may be removed with cause by a vote of the
holders of a majority of shares entitled to vote at an election of directors,
and without cause by the vote of at least 66 2/3% of the shares entitled to vote
at an election of directors.
Under the PBCL, any director or the entire board of directors of a
corporation may be removed, with or without cause, if the removal is approved by
the affirmative vote of a majority of the outstanding shares entitled to vote.
FILLING VACANCIES ON THE BOARD OF DIRECTORS
Under the DCGL, vacancies and newly created directorships may be filled by a
majority of the directors then in office (even though less than a quorum) unless
otherwise provided in the certificate of incorporation or bylaws (and unless the
certificate of incorporation directs that a particular class of stock is to
elect such director, in which case any other directors elected by such class, or
a sole remaining director so elected, may fill such vacancy). Under the FCG
Certificate of Incorporation and FCG Bylaws, only a majority of directors then
in office (even though less than a quorum) may fill any vacancies or newly
created directorship on the FCG Board of Directors (unless the FCG Board of
Directors determines by resolution that the newly created directorship shall be
filled by the stockholders).
Pursuant to the PBCL and the ISCG Bylaws, any vacancy on ISCG's Board of
Directors, including vacancies resulting from an increase in the number of
directors, may be filled by a majority vote of the remaining members of the
Board, though less than a quorum, or by a sole remaining director, and each
person so selected will be a director to serve until a successor has been
selected and qualified or until his or her earlier death, resignation or
removal. When one or more directors resign from the board effective at a future
date, the directors then in office, including those who have so resigned, will
have power by the applicable vote to fill the vacancies, the vote thereon to
take effect when the resignations become effective.
INTERESTED DIRECTOR TRANSACTIONS
Under the DGCL, certain contracts or transactions in which one or more of a
corporation's directors has an interest are not void or voidable because of such
interest, provided that certain conditions, such as obtaining the required
approval and fulfilling the requirements of good faith and full disclosure are
met. Under the DGCL the conditions are that either (i) the shareholders or the
disinterested directors must approve any such contract or transaction after the
full disclosure of material facts, or (ii) the contract or transaction must have
been fair as to the corporation at the time it was approved. Under the DGCL, if
board approval is sought, the contract or transactions must be approved by a
majority of the disinterested directors (even though less than a quorum).
Similarly, under the PBCL, a transaction between a corporation and an
interested director will not be void or voidable solely for that reason if (i)
the board of directors knows about the director's interest and authorized the
transaction by the affirmative vote of a majority of the disinterested directors
even though the disinterested directors are less than a quorum, (ii) the
shareholders entitled to vote thereon know
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about the director's interest and the contract is specifically approved in good
faith by vote of those shareholders or (iii) the transaction is fair to the
corporation as of the time it is authorized, approved or ratified by the board
of directors or the shareholders.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
FCG provides indemnification of its directors, officers and employees. The
FCG Bylaws provide that FCG shall indemnify each of its directors and executive
officers against expenses, judgments, fines, settlements, and other amounts
actually and reasonably incurred in connection with any proceeding, arising by
reason of the fact that such person is or was an agent of the corporation. The
FCG Certificate of Incorporation provides that FCG may agree to indemnify and
protect any director, officer, employee or agent to the fullest extent permitted
by the DGCL. Under the DGCL other than an action brought by or in the right of
the corporation, such indemnification is available if it is determined that the
proposed indemnitee acted in good faith and in a manner he or she reasonably
believed to be in or not opposed to the best interests of the corporation, and,
with respect to any criminal action or proceedings, had no reasonable cause to
believe his or her conduct was unlawful. In actions brought by or in the right
of the corporation, such indemnification is limited to expenses actually and
reasonably incurred and permitted only if the indemnitee acted in good faith and
in a manner he or she reasonably believed to be in or not opposed to the best
interests of the company, except that no indemnification may be made in respect
of any claim, issue or matter as to which such person is adjudged to be liable
to the corporation, unless and only to the extent that the court in which the
action was brought determines that, despite the adjudication of liability but in
view of all the circumstances of the case, the person is fairly and reasonably
entitled to indemnity for such expenses which the court deems proper. To the
extent that the proposed indemnitee has been successful in defense of any
action, suit or proceeding, he must be indemnified against expenses actually and
reasonably incurred by him in connection with the action.
The PBCL permits a corporation to indemnify its representatives. Pursuant to
the ISCG Bylaws, no director of ISCG will be personally liable as such for
monetary damages for any action taken, or any failure to take action, unless the
director has breached or failed to perform the duties of his office under the
PBCL and the breach or failure to perform constitutes self-dealing, willful
misconduct or recklessness; provided, however, that a director may be
responsible or liable pursuant to a criminal statute or for payment of taxes
pursuant to local, state or federal law. The ISCG Bylaws provide that ISCG will
indemnify any officer or any director (or employee or agent designated by
majority vote of the ISCG Board of Directors to the extent provided in such
vote) who was or is a party to or threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (including action by or in the right
of ISCG) by reason of the fact that he is or was a director or officer (or
employee or agent) of ISCG or is or was serving at the request of ISCG as a
director or officer (or employee or agent) of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding; provided, however, that indemnification will not be
made in any case where the act or failure to act giving rise to the claim for
indemnification is determined by a court to have constituted willful misconduct
or recklessness. Expenses incurred by an officer, director, employee or agent
purportedly indemnified pursuant to the ISCG Bylaws in defending a civil or
criminal action, suit or proceeding may be paid by the corporation in advance of
the final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such person to repay such amount if it will
ultimately be determined that he is not entitled to be indemnified by the
corporation. The indemnification and advancement of expenses provided for in the
ISCG Bylaws continues as to a person who has ceased to be a director, officer,
employee or agent of the corporation and will inure to the benefit of the heirs,
executors and administrators of such person.
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AMENDMENTS TO THE CERTIFICATE OF INCORPORATION AND ARTICLES OF INCORPORATION
Under the DGCL, a corporation's certificate of incorporation can be amended
by the affirmative vote of the board of directors and approved by the
affirmative vote of the holders of a majority of the outstanding shares entitled
to vote thereon, unless the certificate of incorporation requires the vote of a
larger portion of the shares. The FCG Certificate of Incorporation requires
approval by 66 2/3% of the outstanding shares entitled to vote thereon in order
to amend certain provisions of the FCG Certificate of Incorporation relating to
the composition of the FCG Board, election, removal and actions of directors,
amendment of the FCG Bylaws and FCG Certificate of Incorporation, actions by
stockholders, the calling of special meetings of stockholders and
indemnification of directors.
The PBCL provides that a vote of the shareholders entitled to vote on a
proposed amendment to the articles of incorporation will be taken at the next
annual or special meeting of which notice for that purpose has been duly given.
Unless the articles of incorporation or a specific provision of the PBCL
requires a greater vote, a proposed amendment of the articles of incorporation
will be adopted upon receiving the affirmative vote of a majority of the votes
cast by all shareholders entitled to vote thereon and, if any class or series of
shares is entitled to vote thereon as a class, the affirmative vote of a
majority of the votes cast in each such class vote. In general, pursuant to the
PBCL, a proposed amendment of the articles of incorporation will not be deemed
to have been adopted by a corporation unless it has also been approved by the
board of directors, regardless of the fact that the board has directed or
suffered the submission of the amendment to the shareholder for action. The ISCG
Articles of Incorporation do not require a higher percentage of affirmative
votes than a majority of the shares entitled to vote thereon.
AMENDMENT OF BYLAWS
Under the FCG Certificate of Incorporation and FCG Bylaws, the stockholders
of FCG may alter or amend the FCG Bylaws by a vote of at least 66 2/3% of the
outstanding shares entitled to vote thereon. Under the FCG Certificate of
Incorporation and FCG Bylaws, the FCG Board of Directors may adopt, amend or
repeal the FCG Bylaws.
Pursuant to the PBCL, bylaws of a corporation may be amended or repealed
either by the shareholders of the corporation at any duly organized meeting
thereof or, with respect to those matters that are not expressly committed by
the PBCL to the shareholders and, regardless of whether the shareholders have
previously adopted or approved the bylaws being amended or repeal, by the board
of directors of the corporation.
POWER TO CALL SPECIAL SHAREHOLDERS' MEETING; ACTION BY CONSENT
Under the DGCL, a special meeting of stockholders may be called by the board
of directors or by any other person authorized to do so in the certificate of
incorporation or the bylaws. The FCG Certificate of Incorporation and the FCG
Bylaws provide that special meetings of stockholders may be called only by the
FCG Board of Directors, the Chairman of the FCG Board of Directors, the
President of FCG, or by any person or persons holding shares representing at
least 10% of the outstanding capital stock of FCG. The FCG Certificate of
Incorporation provides that any action taken by stockholders must be effected at
an annual or special meeting and may not be effected by written consent.
Under the PBCL, a special meeting of the shareholders may be called at any
time by (i) the board of directors, (ii) unless otherwise provided in the
articles of incorporation, by shareholders entitled to cast at least 20% of the
votes that all shareholders are entitled to cast at that particular meeting or
(iii) by such officers or other persons as may be provided in the bylaws. The
ISCG Bylaws provide that a special meeting of the shareholders may be called at
any time upon written notice to the secretary of the corporation by (i) a
majority of the ISCG Board of Directors or (ii) by the President. Additionally,
under the PBCL and the Bylaws of ISCG, the ISCG Board of Directors must hold at
least one meeting of the shareholders in each calendar year. If the annual
meeting of the shareholders is not called and held within six months after the
time designated by the Board of Directors, then any shareholder may call the
meeting
102
<PAGE>
at any time thereafter. The PBCL requires that at any time, upon written request
of any person who has called a special meeting, the secretary must fix the time
of the meeting which, if the meeting is called pursuant to a statutory right,
will be held not more than 60 days after the receipt of the request. If the
secretary neglects or refuses to fix the time of the meeting, the person or
persons calling the meeting may do so.
Under the PBCL, unless otherwise restricted in the bylaws, any action
required or permitted to be taken at a meeting of the shareholders or class of
shareholders of a corporation may be taken without a meeting of the shareholders
if, prior or subsequent to the action, a consent or consents thereto by all the
shareholders who would be entitled to vote at a meeting for such purpose are
filed with the secretary of the corporation. ISCG's Bylaws do not contain any
restrictions on shareholders' ability to act by unanimous written consent. The
PBCL also provides that, if the ISCG bylaws so provide, any action required or
permitted to be taken at a meeting of the shareholders or of a class of
shareholders may be taken without a meeting upon the written consent of
shareholders who would have been entitled to cast the minimum number of votes
that would be necessary to authorize the action at a meeting at which all
shareholders entitled to vote thereon were present and voting. ISCG's Bylaws do
not provide for shareholder action by partial written consent.
INSPECTION OF SHAREHOLDERS' LIST
The DGCL allows any shareholder to inspect the shareholders' list for a
purpose reasonably related to such person's interest as a shareholder. The PBCL
provides that the officer or agent having charge of the transfer books for the
shares of the corporation must make a complete list of the shareholders entitled
to vote at a shareholder meeting, arranged in alphabetical order, with the
address of and the number of shares held by each shareholder The list must be
produced and kept open at the time and place of the shareholder meeting and will
be subject to the inspection of any shareholder during the whole time of the
meeting for the purposes thereof.
DIVIDENDS AND REPURCHASES OF SHARES
The DGCL permits a corporation, unless otherwise restricted by its
certificate of incorporation, to declare and pay dividends out of its surplus
or, if there is no surplus, out of net profits for the fiscal year in which the
dividend is declared or for the preceding fiscal year as long as the amount of
capital of the corporation is not less than the aggregate amount of the capital
represented by the issued and outstanding stock of all classes having a
preference upon the distribution of assets. The FCG Certificate of Incorporation
does not contain any such restrictions on FCG's ability to declare and pay
dividends. In addition, the DGCL generally provides that a corporation may
redeem or repurchase its shares only if such redemption or repurchase would not
impair the capital of the corporation. The ability of a Delaware corporation to
pay dividends on, or to make repurchases or redemptions of, its shares is
dependent on the financial status of the corporation standing alone and not on a
consolidated basis. In determining the amount of surplus of a Delaware
corporation, the assets of the corporation, including stock of subsidiaries
owned by the corporation, must be valued at their fair market value as
determined by the board of directors, regardless of their historical book value.
The PBCL provides that, unless otherwise restricted in the bylaws, a
distribution may be made unless if, after giving effect thereto, (i) the
corporation would be unable to pay its debts as they become due in the usual
course of its business or (ii) the total assets of the corporation would be less
than the sum of its total liabilities plus the amount that would be needed, if
the corporation were to be dissolved at the time as of which the distribution is
measured, to satisfy the preferential rights upon dissolution of shareholders
whose preferential rights are superior to those receiving the distribution. The
PBCL also permits corporations to acquire their own shares. The ISCG Articles of
Incorporation do not impose additional restrictions on distributions.
Furthermore, the ISCG Articles of Incorporation permit dividends to be paid upon
the ISCG Common Stock as and where declared by the ISCG Board of Directors,
subject to the rights of the
103
<PAGE>
preferred shareholders. The ISCG Bylaws provide that any dividends paid may be
paid in cash, in property, or in shares of the corporation.
APPROVAL OF CERTAIN CORPORATE TRANSACTIONS
Under the DGCL, with certain exceptions, any merger, consolidation or sale,
lease or exchange of all or substantially all of the assets must be approved by
the board of directors and by the affirmative vote of a majority of the
outstanding shares entitled to vote thereon. Pursuant to the PBCL, a plan of
merger or consolidation generally shall be adopted upon receiving the
affirmative vote of a majority of the votes cast by all shareholders entitled to
vote thereon of each of the domestic corporations that is a party to the merger
or consolidation and, if any class or series of shares is entitled to vote
thereon as a class, the affirmative vote of a majority of the votes cast in each
class to vote. Additionally, the PBCL generally provides that the sale, lease,
exchange or other disposition of all, or substantially all the property and
assets, with or without the goodwill, of a corporation, must be made only
pursuant to a plan of asset transfer which is approved in the same manner that
mergers are approved.
BUSINESS COMBINATION FOLLOWING A CHANGE OF CONTROL
The DGCL prohibits certain business combinations between a Delaware
corporation, the shares of which are listed on a national securities exchange,
and an "interested shareholder" for a period of three years following the time
that such person became an "interested shareholder," without board approval,
unless certain conditions are met and unless the certificate of incorporation of
the corporation contains a provision expressly electing not to be governed by
such provisions. The FCG Certificate of Incorporation does not contain such an
election.
Similarly, the PBCL prohibits certain business combinations between a
Pennsylvania corporation that is a "registered corporation" (which includes
corporations registered under the Exchange Act) and an "interested shareholder"
unless certain conditions are met and unless the articles of incorporation
expressly provide that such corporation is electing not to be subject to such
provisions. The ISCG Articles of Incorporation contain such an election,
therefore, provisions of the PBCL that impose special standards with respect to
business combinations between registered corporations and interested
shareholders do not apply to ISCG.
SHAREHOLDER DERIVATIVE SUITS
Under the DCGL, a stockholder may only bring a derivative action on behalf
of the corporation if the stockholder was a stockholder of the corporation at
the time of the transaction in question or his or her stock thereafter devolved
upon him or her by operation of law. The PBCL provides that in any action or
proceeding brought to enforce a secondary right on the part of one or more
shareholders of a corporation against any present or former officer or director
of the corporation because the corporation refuses to enforce rights that may
properly be asserted by it, each plaintiff must aver and it must be made to
appear that each plaintiff was a shareholder of the corporation or owner of a
beneficial interest in the shares at the time of the transaction of which he
complains, or that his shares or beneficial interest in the shares devolved upon
him by operation of law from a person who was a shareholder or owner of a
beneficial interest in the shares at that time; provided however that any
shareholder who otherwise would be entitled to maintain the action or proceeding
and who does not meet such requirements may, nevertheless in the discretion of
the court, be allowed to maintain the action or proceeding on preliminary
showing to the court, by application and upon such verified statements and
depositions as may be required by the court, that there is a strong prima facie
case in favor of the claim asserted on behalf of the corporation and that
without the action serious injustice will result. In any action or proceeding
instituted or maintained by holders or owners of less than 5% of the outstanding
shares of any class of the corporation, unless the shares held or owned by the
holders or owners have an aggregate fair market value in excess of $200,000, the
corporation in whose right the action or proceeding is brought will be entitled
to require the plaintiffs to give security for the reasonable expenses,
including attorneys' fees, that may be incurred by it in
104
<PAGE>
connection therewith or for which it may become liable in connection with
mandatory indemnification, to which security the corporation will have recourse
in such amount as the court determines upon the termination of the action or
proceeding.
DISSENTERS' RIGHTS
Under the DGCL, a shareholder of a corporation participating in certain
major corporate transactions may, under varying circumstances, be entitled to
appraisal rights pursuant to which such shareholder may receive cash in the
amount of the fair market value of the shares held by such shareholder (as
determined by a court or by agreement of the corporation and the shareholder) in
lieu of the consideration such shareholder may otherwise receive in the
transaction. Under the DGCL, appraisal rights are not available to: (i)
stockholders with respect to a merger or consolidation by a corporation, the
shares of which are either listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or are held of
record by more than 2,000 holders if such stockholders receive only shares of
the surviving corporation or shares of any other corporation which are either
listed on a national securities exchange or designated as a national market
system security on an interdealer quotation system by the National Association
of Securities Dealers, Inc. or are held of record by more than 2,000 holders; or
(ii) stockholders of a corporation surviving a merger if no vote of the
stockholders of the surviving corporation is required to approve the merger
because, among other things, the number of shares to be issued in the merger
does not exceed 20% of the shares of the surviving corporation outstanding
immediately prior to the merger, and if certain other conditions are met.
Under the PBCL, a shareholder of a corporation generally has the right,
under varying circumstances, to dissent from certain corporate transactions
(including mergers, share exchanges, the sale of all or substantially all of the
corporate assets and corporate divisions) and to obtain payment in cash of the
fair value of his shares in lieu of the consideration he would otherwise receive
in the transaction. Pursuant to the PBCL, if the proposed corporate action is
submitted to a vote at a meeting of shareholders of a corporation, any person
who wishes to dissent and obtain payment of the fair value of his shares must
file with the corporation, prior to the vote, a written notice of intention to
demand that he be paid the fair value for his shares if the proposed action is
effectuated, must effect no change in the beneficial ownership of his shares
form the date of such filing continuously through the effective date of the
proposed action and must refrain from voting his shares in approval of such
action. A dissenter who fails in any respect will not acquire any right to
payment of the fair value of his shares. Neither a proxy nor a vote against the
proposed corporate action will constitute the written notice required. Under the
PBCL, a person who wishes to exercise dissenters' rights must also comply with
the other requirements set forth in the PBCL. See "Summary of Dissenters'
Rights."
The DGCL also does not provide stockholders of a corporation with appraisal
rights when the corporation acquires another business through the issuance of
its capital stock: (i) in exchange for all or substantially all of the assets of
the business to be acquired; (ii) in exchange for more than fifty percent of the
outstanding shares of the corporation to be acquired; or (iii) in a merger of
the corporation to be acquired with a subsidiary of the acquiring corporation.
DISSENTERS' RIGHTS MAY BE AVAILABLE TO SHAREHOLDERS OF ISCG WITH RESPECT TO THE
MERGER. SEE "THE MERGER-- RIGHTS OF DISSENTING SHARES OF ISCG."
DISSOLUTION
Under the DGCL, unless approved by stockholders holding 100% of the total
voting power of the corporation, a dissolution must be initiated by the FCG
Board of Directors and approved by the affirmative vote of the holders of a
majority of the outstanding stock of the corporation entitled to vote thereon.
105
<PAGE>
Under the PBCL, a resolution to dissolve a corporation shall be adopted upon
receiving the affirmative vote of a majority of the votes cast by all
shareholders of the corporation entitled to vote thereon and, if any class of
shares is entitled to vote thereon as a class, the affirmative vote of a
majority of the votes cast in each class vote. A proposal for the voluntary
dissolution of a corporation will not be deemed to have been adopted by the
corporation unless it has also been recommended by resolution of the board of
directors, regardless of the fact that the board has directed or suffered the
submission of such a proposal to the shareholders for action.
EXPERTS
The consolidated financial statements of First Consulting Group, Inc. as of
December 31, 1997 and 1996 and for each of the three years in the period ended
December 31, 1997, included in this Joint Proxy Statement/Prospectus have been
so included in reliance upon the report of Grant Thornton LLP, independent
certified public accountants, given upon the authority of said firm as experts
in accounting and auditing.
The consolidated financial statements and schedule of Integrated Systems
Consulting Group, Inc. as of December 31, 1997 and 1996 and for each of the
years in the three-year period ended December 31, 1997, have been incorporated
by reference herein and in this Joint Proxy Statement/Prospectus in reliance
upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, incorporated by reference herein, and upon the authority of that
firm as experts in accounting and auditing.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby and other legal
matters will be passed upon for FCG by Cooley Godward LLP, Palo Alto,
California. Cooley Godward LLP and certain members and associates in such firm
own an aggregate of approximately 2,500 shares of FCG Common Stock.
Certain legal matters in connection with the Merger will be passed upon for
ISCG by Saul, Ewing, Remick & Saul, LLP, Berwyn, Pennsylvania.
FCG STOCKHOLDER PROPOSALS
Stockholder proposals for inclusion in the proxy statement of FCG to be
issued in connection with the 1999 Annual Meeting of FCG stockholders must be
delivered to or mailed and received at the principal executive offices of FCG
not later than on the close of business on the sixtieth day nor earlier than the
close of business on the ninetieth day prior to the first anniversary of the
preceding year's annual meeting; provided, however, that in the event public
announcement of the date of such annual meeting is first made by FCG fewer than
seventy days prior to the date of such annual meeting, the close of business on
the tenth day following the day on which public announcement is first made by
FCG.
ISCG SHAREHOLDER PROPOSALS
ISCG expects to hold an annual meeting of shareholders sometime during May
of 1999 unless the Merger is completed prior to such period. In the event that a
shareholder desires to have a proposal included in the proxy statement and form
of proxy for the annual meeting of shareholders to be held in 1999, the proposal
must be received by ISCG in writing on or before January 1, 1999, by certified
mail, return receipt requested, and must comply in all respects with applicable
rules and regulations of the Commission relating to such inclusions. Shareholder
proposals must be mailed to the Secretary of ISCG at the ISCG Principal Offices.
106
<PAGE>
FIRST CONSULTING GROUP, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS......................................................... F-2
FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS.............................................................................. F-3
CONSOLIDATED STATEMENTS OF OPERATIONS.................................................................... F-4
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY................................................ F-5
CONSOLIDATED STATEMENTS OF CASH FLOWS.................................................................... F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS............................................................... F-7
INTERIM FINANCIAL STATEMENTS
INTERIM CONSOLIDATED BALANCE SHEETS...................................................................... F-19
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS............................................................ F-20
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS............................................................ F-21
INTERIM NOTES TO CONSOLIDATED FINANCIAL STATEMENTS....................................................... F-22
</TABLE>
F-1
<PAGE>
FIRST CONSULTING GROUP, INC. AND SUBSIDIARIES
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
First Consulting Group, Inc.
We have audited the accompanying consolidated balance sheets of First
Consulting Group, Inc. (formerly FCG Enterprises, Inc.) and its subsidiaries as
of December 31, 1997 and 1996, and the related consolidated statements of
operations, changes in stockholders' equity and cash flows for each of the three
years in the period ended December 31, 1997. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
First Consulting Group, Inc. and Subsidiaries as of December 31, 1997 and 1996,
and the consolidated results of their operations and their consolidated cash
flows for each of the three years in the period ended December 31, 1997, in
conformity with generally accepted accounting principles.
/s/ Grant Thornton LLP
Los Angeles, California
January 17, 1998, except for Note K
as to which the date is
February 10, 1998.
F-2
<PAGE>
FIRST CONSULTING GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1997
------------------------
ACTUAL 1996
PRO FORMA --------- ---------
-------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents............................................................. $ 2,950 $ 2,950 $ 214
Accounts receivable, less allowance of $500 and $83 in 1997 and 1996, respectively.... 11,846 11,846 7,803
Work in process....................................................................... 8,030 8,030 7,117
Prepaid expenses...................................................................... 821 821 1,067
Income tax receivables................................................................ 1,114 1,114 --
Current portion of notes receivable--stockholders..................................... 328 328 184
------------- --------- ---------
Total current assets................................................................ 25,089 25,089 16,385
Notes receivable--stockholders (Note D)................................................. 1,368 1,368 454
Property and equipment
Furniture, equipment, and leasehold improvements...................................... 1,874 1,874 1,040
Information systems equipment......................................................... 9,040 9,040 6,565
------------- --------- ---------
10,914 10,914 7,605
Less accumulated depreciation and amortization.......................................... 5,641 5,641 3,286
------------- --------- ---------
5,273 5,273 4,319
Other assets
Executive Benefit Trust (Note G)...................................................... 2,506 2,506 1,264
Other................................................................................. 189 189 390
------------- --------- ---------
2,695 2,695 1,654
------------- --------- ---------
Total assets........................................................................ $ 34,425 $ 34,425 $ 22,812
------------- --------- ---------
------------- --------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Line of credit........................................................................ $ 2,000 $ 2,000 $ --
Current portion of long-term debt (Note B)............................................ 871 871 670
Accounts payable...................................................................... 735 735 1,646
Accrued liabilities................................................................... 2,219 2,219 931
Accrued vacation...................................................................... 1,923 1,923 1,368
Deferred revenue...................................................................... 391 391 --
Customer advances..................................................................... 1,965 1,965 --
Deferred income taxes (Note C)........................................................ 5,679 5,679 4,218
------------- --------- ---------
Total current liabilities........................................................... 15,783 15,783 8,833
Non-current liabilities
Long-term debt, net of current portion (Note B)....................................... 262 262 2,692
Supplemental executive retirement plan (Note G)....................................... 2,506 2,506 1,264
Deferred income taxes (Note C)........................................................ 447 447 140
Other................................................................................. -- -- 185
------------- --------- ---------
3,215 3,215 4,281
Commitments and contingencies (Notes E and G)........................................... -- -- --
Put obligation related to ASOP and capital stock (Notes H and I)........................ -- 9,965 6,658
Stockholders' equity
Preferred Stock, $.001 par value; 10,000,000 shares authorized, no shares issued and
outstanding......................................................................... -- -- --
Common Stock, $.001 par value; 50,000,000 shares authorized, 12,042,664 and 10,696,120
shares issued and outstanding at December 31, 1997 and 1996, respectively........... 12 12 11
Additional paid-in capital............................................................ 20,822 20,822 11,539
Retained earnings..................................................................... 4,215 4,215 5,749
Deferred compensation--stock incentive agreements (Notes A and H)..................... (3,635) (3,635) (2,333)
Unearned ASOP shares (Note I)......................................................... (853) (853) (3,225)
Notes receivable--stockholders (Note D)............................................... (5,134) (5,134) (2,043)
Put obligation related to ASOP and capital stock (Notes H and I)...................... -- (9,965) (6,658)
------------- --------- ---------
Total stockholders' equity.......................................................... 15,427 5,462 3,040
------------- --------- ---------
Total liabilities and stockholders' equity.......................................... $ 34,425 $ 34,425 $ 22,812
------------- --------- ---------
------------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
FIRST CONSULTING GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Net revenue...................................................................... $ 91,570 $ 65,822 $ 47,744
Cost of services................................................................. 53,526 40,718 26,518
--------- --------- ---------
Gross profit................................................................. 38,044 25,104 21,226
General and administrative expenses.............................................. 31,669 23,670 17,517
Compensation expenses related to stock issuances (Note H)........................ 6,060 588 385
--------- --------- ---------
Income from operations....................................................... 315 846 3,324
--------- --------- ---------
Other income
Interest income................................................................ 245 245 172
Interest expense............................................................... (313) (242) (208)
Other income, net.............................................................. 119 44 18
--------- --------- ---------
Income before income taxes................................................... 366 893 3,306
Provision for income taxes....................................................... 1,900 500 1,423
--------- --------- ---------
Net income (loss)............................................................ $ (1,534) $ 393 $ 1,883
--------- --------- ---------
--------- --------- ---------
Income (loss) per share (restated, see note A9)
Basic net income (loss) per share.............................................. $ (.15) $ .05 $ .25
--------- --------- ---------
--------- --------- ---------
Diluted net income (loss) per share............................................ $ (.15) $ .04 $ .25
--------- --------- ---------
--------- --------- ---------
Basic weighted average shares.................................................. 9,987 8,671 7,515
Diluted weighted average shares................................................ 9,987 9,127 7,544
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
FIRST CONSULTING GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK UNEARNED
---------------------- RETAINED DEFERRED ASOP
SHARES AMOUNT EARNINGS COMPENSATION SHARES
----------- --------- ----------- -------------- -----------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1995................................. 7,428 $ 967 $ 3,473 $ -- $ --
Redemption of Common Stock............................... (216) (80) -- -- --
Issuance of Common Stock................................. 52 30 -- -- --
Stock issued under stock option agreement--
compensation........................................... -- 76 -- -- --
Issuance of Common Stock under the Associate 401(k) and
Stock Ownership Plan................................... 1,432 4,000 -- -- (4,000)
Issuance of Common Stock under the Restricted Stock
Agreements............................................. 1,372 3,625 -- (1,978) --
Increase of put obligation............................... -- -- -- -- --
Compensation recognized under the Restricted Stock
Agreements............................................. -- -- -- 385 --
Net income............................................... -- -- 1,883 -- --
----------- --------- ----------- -------------- -----------
Balance, December 31, 1995............................... 10,068 8,618 5,356 (1,593) (4,000)
Redemption of Common Stock............................... (28) (40) -- -- --
Issuance of Common Stock under the Restricted Stock
Agreements............................................. 560 1,953 -- (1,048) --
Compensation recognized under the Restricted Stock
Agreements............................................. -- -- -- 308 --
Capital stock released under the Associate 401(k) and
Stock Ownership Plan................................... -- 272 -- -- 775
Interest income on stockholders' notes receivable........ -- -- -- -- --
Issuance of new Common Stock to Associate 401(k) and
Stock Ownership Plan................................... 96 362 -- -- --
Increase of put obligation............................... -- -- -- -- --
Excess income tax benefits attributable to exercised
stock options.......................................... -- 385 -- -- --
Net income............................................... -- -- 393 -- --
----------- --------- ----------- -------------- -----------
Balance, December 31, 1996............................... 10,696 11,550 5,749 (2,333) (3,225)
Redemption of Common Stock............................... (64) (305) -- -- --
Issuance of Common Stock under the Restricted Stock
Agreements............................................. 1,347 4,899 -- (1,847) --
Compensation recognized under the Restricted Stock
Agreements............................................. -- -- -- 545 --
Common Stock released under the Associate 401(k) and
Stock Ownership Plan................................... -- 3,725 -- -- 2,677
Issuance of Common Stock to Associate 401(k) and Stock
Ownership Plan......................................... 64 305 -- -- (305)
Interest income on stockholders' notes receivable........ -- -- -- -- --
Issuance of new Common Stock to associates in the
Associate 401(k) and Stock Ownership Plan.............. -- 265 -- -- --
Increase of put obligation............................... -- -- -- -- --
Excess income tax benefits attributable to exercised
stock options.......................................... -- 395 -- -- --
Net income............................................... -- -- (1,534) -- --
----------- --------- ----------- -------------- -----------
Balance, December 31, 1997............................... 12,043 $ 20,834 $ 4,215 $ (3,635) $ (853)
----------- --------- ----------- -------------- -----------
----------- --------- ----------- -------------- -----------
<CAPTION>
NOTES
RECEIVABLE-- PUT
STOCKHOLDERS OBLIGATION TOTAL
------------- ----------- ---------
<S> <C> <C> <C>
Balance, January 1, 1995................................. $ -- $ (2,730) $ 1,710
Redemption of Common Stock............................... -- -- (80)
Issuance of Common Stock................................. -- -- 30
Stock issued under stock option agreement--
compensation........................................... -- -- 76
Issuance of Common Stock under the Associate 401(k) and
Stock Ownership Plan................................... -- -- --
Issuance of Common Stock under the Restricted Stock
Agreements............................................. (1,469) -- 178
Increase of put obligation............................... -- (2,570) (2,570)
Compensation recognized under the Restricted Stock
Agreements............................................. -- -- 385
Net income............................................... -- -- 1,883
------------- ----------- ---------
Balance, December 31, 1995............................... (1,469) (5,300) 1,612
Redemption of Common Stock............................... -- -- (40)
Issuance of Common Stock under the Restricted Stock
Agreements............................................. (481) -- 424
Compensation recognized under the Restricted Stock
Agreements............................................. -- -- 308
Capital stock released under the Associate 401(k) and
Stock Ownership Plan................................... -- -- 1,047
Interest income on stockholders' notes receivable........ (93) -- (93)
Issuance of new Common Stock to Associate 401(k) and
Stock Ownership Plan................................... -- -- 362
Increase of put obligation............................... -- (1,358) (1,358)
Excess income tax benefits attributable to exercised
stock options.......................................... -- -- 385
Net income............................................... -- -- 393
------------- ----------- ---------
Balance, December 31, 1996............................... (2,043) (6,658) 3,040
Redemption of Common Stock............................... -- -- (305)
Issuance of Common Stock under the Restricted Stock
Agreements............................................. (2,825) -- 227
Compensation recognized under the Restricted Stock
Agreements............................................. -- -- 545
Common Stock released under the Associate 401(k) and
Stock Ownership Plan................................... -- -- 6,402
Issuance of Common Stock to Associate 401(k) and Stock
Ownership Plan......................................... -- -- --
Interest income on stockholders' notes receivable........ (266) -- (266)
Issuance of new Common Stock to associates in the
Associate 401(k) and Stock Ownership Plan.............. -- -- 265
Increase of put obligation............................... -- (3,307) (3,307)
Excess income tax benefits attributable to exercised
stock options.......................................... -- -- 395
Net income............................................... -- -- (1,534)
------------- ----------- ---------
Balance, December 31, 1997............................... $ (5,134) $ (9,965) $ 5,462
------------- ----------- ---------
------------- ----------- ---------
</TABLE>
The accompanying notes are an integral part of this statement.
F-5
<PAGE>
FIRST CONSULTING GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1997 1996 1995
----------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).......................................................... $ (1,534) $ 393 $ 1,883
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization............................................ 2,453 1,739 767
Provision for bad debts.................................................. 417 83 84
Deferred income taxes.................................................... 1,769 498 1,727
Loss (gain) on sale of assets............................................ 16 5 (13)
Compensation from stock issuances........................................ 8,093 1,830 385
Interest income on notes receivable--stockholders........................ (266) (93) --
Change in assets and liabilities:
Accounts receivable...................................................... (4,460) 5,154 (6,084)
Work in process.......................................................... (913) (6,448) --
Prepaid expenses......................................................... 246 -- (721)
Income taxes receivables................................................. (1,114) (185) --
Other assets............................................................. 201 (271) (39)
Accounts payable......................................................... (911) (752) 1,756
Accrued liabilities...................................................... 1,288 (877) 385
Accrued vacation......................................................... 555 1,369 334
Customer advances........................................................ 1,965 -- --
Deferred revenue......................................................... 391 -- --
Other.................................................................... (186) (235) 315
----------- --------- ---------
Net cash provided by operating activities.............................. 8,010 2,210 779
----------- --------- ---------
Cash flows from investing activities:
Issuance of notes receivable............................................... (2,554) (709) (153)
Payments on notes receivable............................................... 1,232 648 177
Purchase of property and equipment......................................... (3,423) (3,571) (1,928)
----------- --------- ---------
Net cash used in investing activities.................................. (4,745) (3,632) (1,904)
Cash flows from financing activities:
Net borrowings on line of credit........................................... 2,000 -- --
Proceeds from issuance of long-term debt................................... 147 -- 4,000
Principal payments on long-term debt....................................... (2,681) (670) (2,160)
Proceeds from issuance of Common Stock..................................... 5 271 106
Common Stock repurchase.................................................... -- (40) (80)
----------- --------- ---------
Net cash provided by (used in) financing activities.................... (529) (439) 1,866
----------- --------- ---------
Net change in cash and cash equivalents................................ 2,736 (1,861) 741
Cash and cash equivalents at beginning of period............................. 214 2,075 1,334
----------- --------- ---------
Cash and cash equivalents at end of period................................... $ 2,950 $ 214 $ 2,075
----------- --------- ---------
----------- --------- ---------
Cash paid during the period for:
Interest................................................................... $ 313 $ 328 $ 202
Income taxes............................................................... $ 87 $ 33 $ 539
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
FIRST CONSULTING GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
First Consulting Group, Inc. (formerly FCG Enterprises, Inc.) and its
subsidiaries (the "Company") is a leading provider of information technology and
other consulting services for healthcare providers, payors, and other healthcare
organizations. The Company's services are designed to assist its clients in
increasing operations effectiveness by reducing cost, improving customer service
and enhancing the quality of patient care. The Company provides this expertise
to clients by assembling multi-disciplinary teams which provide comprehensive
services across its four principal services: consulting, software
implementation, network and application integration and co-management services.
The Company's services and consultants are supported by internal research and a
centralized information system which provides real-time access to current
industry and technology information, project methodologies, experiences and
tools.
1. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of First
Consulting Group, Inc. and its wholly-owned subsidiaries. All material
intercompany accounts and transactions have been eliminated.
2. CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents.
3. PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation and amortization are
provided on a straight-line basis in amounts sufficient to relate the cost of
depreciable assets to operations over their estimated service lives. Leasehold
improvements are amortized over the lives of the respective leases or the
service lives of the improvements, whichever is shorter.
4. WORK IN PROCESS
Work in process represents the recognized net revenue for services performed
that had not been billed to clients at the balance sheet date. Such amounts are
billed as project requisites are met.
5. INCOME TAXES
The Company accounts for income taxes on the liability method under which
deferred tax liabilities (assets) are determined based on the differences
between the financial statement and tax bases of assets and liabilities as
measured by the enacted tax rates which will be in effect when these differences
reverse. Deferred tax expense (benefit) is equal to the change in the deferred
tax liability (asset) from the beginning to the end of the year. A current tax
asset or liability is recognized for the estimated taxes refundable or payable
for the current year.
6. PUT OBLIGATIONS
Currently the existing stockholders of the Company, including the Associate
401(k) and Stock Ownership Plan ("ASOP"), have the ability to require the
Company to repurchase their shares upon the occurrence of certain conditions,
which are outside the control of the Company (see Notes H and I). As such, the
Company reflects estimated obligations related to these repurchase commitments
outside of equity in the accompanying financial statements.
F-7
<PAGE>
FIRST CONSULTING GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
7. REVENUE RECOGNITION
The Company generates substantially all of its revenue from fees for
professional services. The Company typically bills for its services on an
hourly, fixed-fee or fixed-fee per month basis. For services billed on an hourly
basis, the Company recognizes revenue as services are performed. For services
billed on a fixed-fee or fixed-fee per month basis, the Company recognizes
revenue using the percentage of completion method. Revenue is recorded as
incurred at assignment rates net of any adjustments due to specific engagement
situations.
8. STOCK-BASED COMPENSATION
The Company accounts for stock-based employee compensation as prescribed by
APB Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and has adopted
the disclosure provisions of Statement of Financial Accounting Standards 123,
ACCOUNTING FOR STOCK-BASED COMPENSATION ("SFAS 123"). SFAS 123 requires pro
forma disclosures of net income and net income per share as if the fair value
based method of accounting for stock-based awards had been applied. Under the
fair value based method, compensation cost is recorded based on the value of the
award at the grant date and is recognized over the service period. The adoption
of SFAS 123 disclosure provisions has no effect on either the Company's
financial condition or its results of operations.
9. BASIC AND DILUTED NET INCOME (LOSS) PER SHARE
Net income (loss) per share is calculated in accordance with Statement of
Financial Accounting Standards No. 128, EARNINGS PER SHARE ("SFAS 128"), which
superseded APB Opinion No. 15. Net income (loss) per share for all periods
presented has been restated to reflect the adoption of SFAS 128. Basic net
income (loss) per share is based upon the weighted average number of common
shares outstanding. Diluted net income (loss) per share is based on the
assumption that all convertible shares and stock options were converted or
exercised. Dilution is computed by applying the treasury stock method. Under
this method, options and warrants are assumed to be exercised at the beginning
of the period (or at the time of issuance, if later), and as if funds obtained
thereby were used to purchase Common Stock at the average market price during
the period. ASOP shares that have not been committed to be released are not
treated as outstanding when determining the weighted average number of shares
for either basic or diluted net income (loss) per share.
The Company previously issued financial statements that presented net income
(loss) per share in accordance with Securities and Exchange Commission Staff
Accounting Bulletin (SAB) No. 83, which was subsequently superceded by SAB No.
98. The financial statements have been restated to conform to the guidance in
SAB No. 98.
10. CREDIT RISKS
Financial instruments that subject the Company to concentrations of credit
risks consist primarily of billed and unbilled accounts receivable. The
Company's clients are primarily involved in the healthcare industry.
Concentrations of credit risk with respect to billed and unbilled accounts
receivable are limited due to the Company's credit evaluation process and the
nature of its clients. Historically, the Company has not incurred significant
credit-related losses.
11. FAIR VALUE OF FINANCIAL INSTRUMENTS
Management believes the fair value of financial instruments approximates
their carrying amounts. The carrying value of cash and cash equivalents
approximates their estimated fair values. Management believes
F-8
<PAGE>
FIRST CONSULTING GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
the fair values of notes payable and stockholders' notes receivable approximate
their carrying values based on current rates for instruments with similar
characteristics.
12. UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
The Company is in the process of modifying its stock agreements such that,
upon the effectiveness of the proposed initial public offering, the Company will
no longer have the obligation to repurchase shares of Common Stock from the
current stockholders. A pro forma unaudited consolidated balance sheet as of
December 31, 1997 has been presented to reflect this change.
13. DEFERRED COMPENSATION--STOCK INCENTIVE AGREEMENTS
In accordance with APB Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO
EMPLOYEES, the Company records a charge to deferred compensation when it grants
options or sells stock to officers or employees at an exercise price which is
less than the fair market value of such shares. Amounts recorded as deferred
compensation are amortized over the appropriate service period based upon the
vesting schedule for such grants (generally ten years).
14. USE OF ESTIMATES
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the financial statements, and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
15. NEW ACCOUNTING PRONOUNCEMENTS
In 1997, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 130 ("SFAS 130"), REPORTING COMPREHENSIVE
INCOME, which prescribes standards for reporting comprehensive income and its
components. Comprehensive income consists of net income or loss for the current
period and other comprehensive income (income, expenses, gains and losses that
currently bypass the income statement and are reported directly in a separate
component of equity). SFAS 130 is effective for financial statements issued for
periods beginning after December 15, 1997. The Company has determined that the
adoption of SFAS 130 will not have a material effect on the Company's financial
statements.
In 1997, the FASB issued Statement of Financial Accounting Standards No. 131
("SFAS 131"), DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED
INFORMATION, which applies only to publicly held business entities. A reportable
segment, referred to as an operating segment, is component of an entity about
which separate financial information is produced internally, that is evaluated
by the chief operation decision-maker to assess performance and allocate
resources. SFAS 131 is effective for financial statements issued for periods
beginning after December 15, 1997.
16. RECLASSIFICATIONS
Certain reclassifications have been made to the 1996 and 1995 financial
statements to conform to the 1997 presentation.
F-9
<PAGE>
FIRST CONSULTING GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE B--NOTES PAYABLE
The Company has a $6,000,000 revolving line of credit available through
December 1, 1998, at the bank's prevailing prime rate. The balance outstanding
on this line of credit was $2,000,000 and zero at December 31, 1997 and 1996,
respectively. Borrowings on the line are collaterized by all of the Company's
deposit accounts, accounts receivable and equipment. Under the line of credit
agreement, the Company is required to pay a fee equal to 0.25% per annum on the
average daily unused balance and maintain selected financial ratios.
Long-term debt is summarized as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1996
--------- ---------
<S> <C> <C>
Note payable to bank....................................................... $ 958 $ 3,333
Other note payable......................................................... 175 29
--------- ---------
1,133 3,362
Less current portion....................................................... 871 670
--------- ---------
Non-current portion........................................................ $ 262 $ 2,692
--------- ---------
--------- ---------
</TABLE>
The note payable to bank is collateralized by all deposit accounts, accounts
receivable, and equipment of the Company and by unreleased ASOP shares (see Note
I). The Note bears interest at the bank's prime rate (8.5% and 8.25% at December
31, 1997 and 1996, respectively) plus 0.5%. The note is payable in monthly
installments of $56,000 ($672,000 annually) plus interest with the last
installment due December 2001.
NOTE C--INCOME TAXES
The provision for income taxes consists of the following (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Current:
Federal.............................................................................. $ 131 $ 2 $ (288)
State................................................................................ -- -- (16)
--------- --------- ---------
Total current...................................................................... 131 2 (304)
Deferred............................................................................... 1,769 498 1,727
--------- --------- ---------
Provision for income taxes............................................................. $ 1,900 $ 500 $ 1,423
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-10
<PAGE>
FIRST CONSULTING GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE C--INCOME TAXES (CONTINUED)
Temporary differences consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Deferred tax assets
Current
Net operating loss............................................................... $ 72 $ 96 $ 23
Contributions.................................................................... 74 72 22
Bad debts........................................................................ 205 18 --
Other............................................................................ (14) -- --
--------- --------- ---------
Total current deferred tax assets.............................................. 337 186 45
Non-current........................................................................
Supplemental executive retirement plan contributions............................. 720 506 273
Stock based compensation......................................................... -- 104 181
Other............................................................................ 205 61 97
--------- --------- ---------
Total non-current deferred tax assets.......................................... 925 671 551
--------- --------- ---------
Total deferred tax assets.................................................... 1,262 857 596
--------- --------- ---------
Deferred tax liabilities
Current--Accrual to cash basis adjustment.......................................... 6,016 4,404 4,456
Non-current--Stock based compensation 1,372 811 --
--------- --------- ---------
Total deferred tax liabilities 7,388 5,215 4,456
--------- --------- ---------
Total net deferred tax liabilities......................................... $ 6,126 $ 4,358 $ 3,860
--------- --------- ---------
--------- --------- ---------
</TABLE>
As a result of the following items, the total provision for income taxes was
different from the amount computed by applying the statutory U.S. federal income
tax rate to earnings before income taxes:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Federal income tax at statutory rate........................................ 35.0% 35.0% 35.0%
Changes due to:
State franchise tax, net of federal income tax benefit.................... 6.0 6.1 6.1
Meals and entertainment................................................... 44.2 7.1 3.0
ASOP...................................................................... 435.5 12.5 --
Other..................................................................... (1.7) (4.7) (1.1)
----- ----- -----
519.0% 56.0% 43.0%
----- ----- -----
----- ----- -----
</TABLE>
For tax reporting purposes, the Company had historically elected to be taxed
under the cash basis of reporting as opposed to the accrual method used for
financial reporting purposes. As a result of such election, a deferred tax
liability of $6,016,000 and $4,404,000 exists at December 31, 1997 and 1996,
respectively. As a result of the proposed initial public offering of Common
Stock, the Company is required to change its tax reporting to the accrual basis
to be consistent with financial reporting purposes. As a
F-11
<PAGE>
FIRST CONSULTING GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE C--INCOME TAXES (CONTINUED)
result of this change, the deferred tax liability resulting from the use of cash
basis reporting for income taxes will become payable over a period not exceeding
four years.
NOTE D--NOTES RECEIVABLE--STOCKHOLDERS
Notes receivable from stockholders consist primarily of loans provided to
participants of the restricted stock bonus and non-qualified stock option
agreements (see Note H). The Company allows participants to exchange notes for
the purchase of shares of Common Stock and the exercise of stock options. Notes
received in exchange for Common Stock have been classified as a reduction of
stockholders' equity. In addition, the Company also provides participants with
notes to cover associated taxes related to the exercise of stock options. Notes
are generally non-recourse and non-interest bearing and have been discounted
using imputed annual interest rates from 5.77% to 6.36%. Such notes are payable
over a ten-year term.
Participants are required to pay, each year, the greater of 10% of the
outstanding amounts or 50% of the after tax amount of any annual bonus received
by them to repay outstanding amounts of the notes. Stockholders' notes
receivable received in exchange for Common Stock were $5,134,000 and $2,043,000,
as of December 31, 1997 and 1996, respectively. Amortization of deferred
compensation resulting from discounting the face value of non-interest bearing
notes issued to the Company by its vice presidents for the purchase of shares of
Common Stock was $266,269 and $93,432 for the years ended December 31, 1997 and
1996, respectively. Stockholders' notes receivable related to advances to
associates for payment of taxes associated with stock option exercises were
$1,679,000 and $454,000 as of December 31, 1997 and 1996, respectively.
Compensation expense resulting from discounting the face value of non-interest
bearing notes issued to the Company by its vice presidents in connection with
the Company's payment of certain tax liabilities relating to the exercise of
stock options was $518,855 and $187,425 for the years ended December 31, 1997
and 1996, respectively.
NOTE E--COMMITMENTS AND CONTINGENCIES
The Company leases its office facilities, certain office space and living
accommodations for consultants on short-term projects under operating leases
which expire at various dates through 2002. At December 31, 1997, the Company
was obligated under non-cancelable operating leases with future minimum rentals
as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
- -------------------------------------------------------------------------------------
<S> <C>
1998.............................................................................. $ 1,620
1999.............................................................................. 1,297
2000.............................................................................. 969
2001.............................................................................. 716
2002.............................................................................. 543
---------
$ 5,145
---------
---------
</TABLE>
Rent expense aggregated $2,624,000, $1,703,000 and $1,241,000 for the years
ended December 31, 1997, 1996 and 1995, respectively.
F-12
<PAGE>
FIRST CONSULTING GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE E--COMMITMENTS AND CONTINGENCIES (CONTINUED)
The Company is involved in various legal actions arising in the normal
course of business. Management is of the opinion that the outcome of these
matters will not have a material adverse effect on the Company's financial
position or results of operation.
NOTE F--STOCK OPTIONS
A summary of stock option transactions is as follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
EXERCISE PRICE OPTIONS
PER SHARE OUTSTANDING
----------------- -----------
<S> <C> <C>
Balance at January 1, 1995........................................................ -- --
Options granted................................................................. $ 0.57 1,279,440
Options exercised............................................................... 0.57 (733,088)
-----------
Balance at December 31, 1995...................................................... 0.57 546,432
Options granted................................................................. 1.13 366,168
Options exercised............................................................... 0.94 (193,928)
Options canceled................................................................ 0.57 (22,224)
-----------
Balance at December 31, 1996...................................................... 0.76 696,448
Options granted................................................................. 5.05 1,244,576
Options exercised............................................................... 1.15 (822,424)
Options canceled................................................................ 1.13 (89,200)
-----------
Balance at December 31, 1997...................................................... $ 5.49 1,029,400
-----------
-----------
</TABLE>
None of the options outstanding at December 31, 1997 are exercisable. As of
December 31, 1997, option prices ranged from $4.76 to $7.44 and had a remaining
weighted average life of 9.73 years.
Adjusted pro forma information regarding net income is required by SFAS 123,
and has been determined as if the Company had accounted for its employee stock
options under the fair value method of that Statement. The fair value for these
options was estimated at the date of grant using the "minimal value" method for
option pricing with the following weighted average assumptions: risk-free
interest rate of 6%; dividend yield of 0%; and a remaining weighted average life
of the option of two to five years. For purposes of adjusted pro forma
disclosures, the estimated fair value of the options is not materially different
from the intrinsic value of the options. As such, the pro forma impact on
reported results for the years ended December 31, 1997, 1996 and 1995 was not
significant and has not been presented herein. The weighted average fair value
of options granted during the year ended December 31, 1997, 1996 and 1995 was
$1.60, $2.79 and $1.13, respectively.
For the year ended December 31, 1997, 1996 and 1995, compensation expense
recognized in income for stock-based employee compensation related to the grant
of options was $278,415, $215,000 and $385,000, respectively.
F-13
<PAGE>
FIRST CONSULTING GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE G--PROFIT-SHARING PLAN AND SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
PROFIT-SHARING PLAN
The Company had a discretionary profit-sharing plan covering substantially
all employees. Contributions were determined by the Board of Directors and were
limited to the maximum amount deductible for federal income tax purposes.
Discretionary contributions to the profit-sharing plan were $150,000 for the
year ended December 31, 1995. Effective January 1, 1996, this plan was merged
into the ASOP (see Note I).
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
On January 1, 1994 the Company adopted the Supplemental Executive Retirement
Plan (the "SERP"). The SERP was amended on January 1, 1996. The SERP is
administered by the Board of Directors or a committee appointed by the Board of
Directors.
Participants in the SERP are those executive officers at the vice president
or higher level of seniority who are eligible to participate in the 1994 Plan
and who are selected by the Board of Directors or a committee appointed by the
Board of Directors to participate. The Board of Directors or a committee
appointed by the Board of Directors may also designate other officers for
participation in the compensation reduction portion of the SERP. Participation
is conditioned on the submission of a completed enrollment form. SERP
participation terminates when a participant ceases to be a stockholder of the
Company, provided that a former stockholder who continues as an officer may
continue to participate in the compensation reduction portion of the SERP.
Participants may make fully vested compensation reduction contributions to
the SERP, subject to a maximum deferral of 10% of annual base salary. The
Company may make a voluntary "FCG Contribution" for any year in an amount
determined by the Board to the account of SERP participants. FCG Contributions
vest 10% for each year of service (with up to 5 years service credit for
participants who were vice presidents on January 1, 1994), provided that FCG
Contributions fully vest upon a Change in Control of the Company or upon a
participant's death, disability or attainment of age 65. Company contributions
to the SERP were $493,000, $372,000 and $301,000 for the years ended December
31, 1997, 1996, and 1995, respectively.
The contributions to the SERP are invested by the Company in Variable Life
Insurance Contracts. Management believes that the participants' account balance,
cash surrender value of life insurance and death benefits will be sufficient to
satisfy the Company's obligations under the SERP.
NOTE H--STOCK INCENTIVE AGREEMENTS
1994 RESTRICTED STOCK PLAN AND AGREEMENTS
On December 15, 1997, the Board of Directors adopted an amendment to the
1994 Restricted Stock Plan (as amended the "1994 Plan") and form of Restricted
Stock Agreement ("RSA"). The stockholders approved the 1994 Plan and RSAs on
January 15, 1998. The 1994 Plan provides a mechanism for the purchase and sale
of Common Stock by its vice presidents. The 1994 Plan is administered by the
Company's Board of Directors or a committee appointed by the Board.
Under the 1994 Plan, the Company has entered into RSAs with each of its vice
presidents. The 1994 Plan and RSAs provide that each person, upon becoming a
vice president of the Company, must purchase and hold a specific minimum number
of shares of Common Stock. Vice presidents at Levels I and II are
F-14
<PAGE>
FIRST CONSULTING GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE H--STOCK INCENTIVE AGREEMENTS (CONTINUED)
required to purchase and hold that number of shares equal to one times the vice
president's base salary divided by the then-current fair value of the Common
Stock. Vice presidents at Levels III and IV are required to purchase and hold
that number of shares equal to two times the vice president's base salary
divided by the then-current fair value of the Common Stock. Prior to the
completion of this offering, the fair value of the Common Stock is determined by
reference to a report prepared for the Company by an independent valuation firm.
Shares purchased under the RSAs are subject to a 10-year vesting period
beginning the date upon which an individual becomes a vice president and vest
annually upon the completion of each year of service. Automatic acceleration of
vesting occurs upon death or permanent disability of a vice president and upon
certain changes in ownership of the Company. Partial acceleration of vesting may
also occur once the vice president attains the age of 59. Shares purchased after
consummation of this offering are fully vested upon purchase.
Under the terms of the RSAs, the Company retains a repurchase right with
respect to unvested shares, unless such termination is due to debt, disability
or changes in control of the Company. Pursuant to this right, the Company may
repurchase unvested shares at the original issuance price plus a growth factor.
The growth factor is equal to the average interest rate compounded quarterly
which the Company pays to a commercial lending institution in a calendar quarter
(the "Growth Factor"). In the event the Company has no borrowings for a
particular quarter, then the Growth Factor shall be the prime rate on the first
day of the quarter, as announced in the Wall Street Journal or if the Wall
Street Journal discontinues such announcements, then it shall be the prime rate
as announced by Bank of America. Shares acquired under RSAs are nontransferable,
with the exception of transfers for certain estate planning and charitable gift
purposes. In addition, the RSAs provide that, under certain circumstances and
upon attaining a certain age, a vice president may sell a portion, but not all,
of his or her shares to other vice presidents or to the Company. The Company may
also repurchase vested shares from a departing vice president if he or she
competes with the Company and/or profits from the sale of Common Stock within
six months of such competition. Upon completion of this offering, a vice
president may also sell unencumbered shares of Common Stock on the public
market, subject to continuing to satisfy the minimum shareholding requirements.
Vice presidents pay the purchase price of the shares by means of non-recourse
and recourse non-interest bearing promissory notes.
The RSAs also contain non-competition and non-solicitation provisions which
apply generally to the vice president's employment with the Company and which
continue to bind the vice president even after repurchase of all shares by the
Company; provided, however, that such provisions may be superseded by an
employment agreement entered into between the Company and the vice president.
The Company maintains life insurance coverage for the purpose of redeeming
stock of its vice president stockholders through the SERP in the event of a vice
president's death (see Note G). For most vice presidents, the insured benefit is
equal to the current market value of the vice president's shareholdings. The
Company is also the beneficiary of a split-dollar life insurance policy on its
principal stockholder that is intended to partially fund the repurchase of the
principal stockholder's stock upon death. The Company also maintains long-term
disability insurance policies on the principal stockholder to help fund the
purchase of stock upon permanent disability of the stockholder.
F-15
<PAGE>
FIRST CONSULTING GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE H--STOCK INCENTIVE AGREEMENTS (CONTINUED)
NON-QUALIFIED STOCK OPTION AGREEMENT
Effective January 1, 1996, and restated January 1, 1997, the Company
executed and adopted a non-qualified stock option agreement for certain
officers. The principal terms of the agreement provide that for each share of
stock purchased at fair market value, the stockholder is granted one exercisable
stock option which allows the stockholder to purchase additional shares at a
price below the fair market value of the Common Stock. During 1997 and 1996,
215,176 and 366,168 shares, respectively, were granted under the provisions of
the agreement and stockholders exercised options on 822,424 and 193,928 shares
of Common Stock, respectively. Deferred compensation of $512,000 and $737,000
was recorded for the years ended December 31, 1997 and 1996, respectively,
related to the granting of options under this agreement. Compensation expense
related to the amortization of the deferred compensation on these options
approximated $145,000 and $79,000 for the years ended December 31, 1997 and
1996, respectively.
Effective December 19, 1995, the Company executed and adopted a
non-qualified stock option agreement for certain vice presidents. The principal
terms of the agreement provided that for each share of stock purchased at fair
market value of the Common Stock, the stockholder was granted two exercisable
stock options which allow the stockholder to purchase additional shares at
approximately 20% of the fair market value of the Common Stock. During 1995,
1,279,440 stock options were granted under the provisions of the agreement and
vice presidents exercised options for 733,008 shares of Common Stock.
Compensation expense related to these options approximated $134,000, $136,000
and $385,000 for the years ended December 31, 1997, 1996 and 1995, respectively.
The agreements also provide that the Company will make non-recourse loans
available for the purchase of stock, the exercise of stock options and
associated taxes (see Note D).
OTHER EQUITY PLANS
On August 22, 1997, the Board adopted an equity incentive plan and
non-employee directors' stock option plan, which was approved by the
shareholders on January 15, 1998. The principal terms of the equity incentive
plan allow the Company to grant either stock options, stock bonuses or stock
appreciation rights to acquire up to 1,600,000 shares of Common Stock. The stock
awards vest over a ten-year term from the date of grant. Under the plan, the
Company granted employees 945,400 options to purchase Common Stock at an
exercise price equal to the market price of Common Stock on the date of grant.
As of December 31, 1997, none of these options were exercisable. The Company had
no stock appreciation rights issued or outstanding for the year ended December
31, 1997.
The non-employee directors' stock option plan allows the Company to grant
options under such plan for up to 200,000 shares of Common Stock. Under the
plan, the Company granted 84,000 options on August 22, 1997, to purchase Common
Stock at an exercise price equal to the market price of the Common Stock on date
of grant. These options vest over a ten-year term from date of grant.
NOTE I--ASSOCIATE 401(k) AND STOCK OWNERSHIP PLAN
The ASOP, as amended, was adopted effective December 1, 1995. The ASOP
covers all employees of the Company and affiliates of the Company designated by
the Company's Board of Directors, excluding any union employees unless their
coverage is bargained for, and excluding non-resident aliens without U.S. source
earned income. ASOP participation commences automatically for newly eligible
employees on semiannual entry dates.
F-16
<PAGE>
FIRST CONSULTING GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE I--ASSOCIATE 401(k) AND STOCK OWNERSHIP PLAN (CONTINUED)
Under the ASOP, participants may elect to reduce their current compensation
by up to the lesser of 15% of such compensation or the statutorily prescribed
annual limit ($9,500 in 1997) and have the amount of such reduction contributed
to the ASOP. In addition, the Company may make contributions to the ASOP on
behalf of participants. Company contributions may be matching contributions
allocated based on each participant's compensation reduction contributions,
discretionary profit sharing contributions allocated based on each participant's
compensation, or "first share contributions" allocated to some or all
participants on a per capita basis.
The ASOP is intended to qualify under Section 401 of the Internal Revenue
Code of 1986, as amended, so that contributions by employees or by the Company
to the ASOP, and income earned thereon are not taxable until withdrawn and so
that contributions by the Company, if any, will be deductible by the Company
when made. Participants become vested in Company contributions under two graded
vesting schedules, so that matching and first share contributions are fully
vested after five years of service and profit sharing contributions are fully
vested after seven years of service. The ASOP is a leveraged employee stock
ownership plan. The ASOP borrowed $4.0 million from a third-party financial
institution (the "ASOP Loan") to purchase 1,429,848 shares of Common Stock in
1995. The shares of Common Stock so purchased were placed in a suspense account
under the ASOP from which they are released and allocated to participants
accounts' as the ASOP Loan is repaid. Any or all Company contributions may be
used to repay the ASOP Loan.
The Company accounts for its ASOP in accordance with Statement of Position
93-6, EMPLOYERS' ACCOUNTING FOR EMPLOYEE STOCK OWNERSHIP PLANS. Accordingly, the
Company reports in its Statement of Financial Position the debt of the ASOP and
unearned ASOP shares, which is the original cost basis of the ASOP shares
pledged as collateral for the debt. As shares are committed to be released, the
Company credits unearned ASOP shares based on the cost of the shares to the
ASOP. The Company records compensation expense based on the fair market value of
the shares committed to be released. The difference between the fair value of
shares committed to be released and the cost of those shares to the ASOP is
either charged or credited to stockholders' equity accounts, as applicable.
Compensation expense for the 401(k) match and the ASOP was approximately $2.4
million and $1.8 million for the years ended December 31, 1997 and 1996,
respectively. No compensation expense related to the ASOP was recognized in 1995
as the plan was adopted on December 1, 1995 and none of the shares had been
committed to be released. Prior to the adoption of the ASOP, the Company
sponsored a profit-sharing plan which included a 401(k) provision with
essentially the same provisions as the current ASOP. The Company's matching
contributions to the 401(k) provision under the previous profit sharing plan was
$560,000 during 1995.
In 1996, the Company made matching contributions and first share
contributions to the ASOP sufficient to provide a 50% matching contribution and
a first share contribution of 200 shares of Company stock for each participant
who was employed by the Company on January 1, 1996 or became employed by the
Company thereafter. In consideration for employees allowing the Company to make
a plan modification to the current ASOP plan, the Company committed to release
1,000 shares of Common Stock to each participant in the ASOP as of November 26,
1997 (568,000 shares in the aggregate). This commitment resulted in a charge to
compensation expense of approximately $4.2 million in the fourth quarter of
1997. Such amount is included in compensation expenses related to stock
issuances in the accompanying financial statements. The committed shares will be
released to participant accounts to the extent that shares distributed to an
individual do not exceed certain Internal Revenue Service section limitations.
F-17
<PAGE>
FIRST CONSULTING GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE I--ASSOCIATE 401(k) AND STOCK OWNERSHIP PLAN (CONTINUED)
The ASOP shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Allocated shares.................................... 1,301,712 372,780 --
Unreleased shares................................... 287,832 1,152,764 1,429,848
------------ ------------ ------------
Total ASOP shares............................... 1,589,544 1,525,544 1,429,848
Fair market value of unreleased shares.............. $ 2,520,000 $ 7,258,000 $ 4,039,000
</TABLE>
Upon the cessation of employment of an employee, the Company pays the
employee the fair market value of the shares of Common Stock previously
allocated to such employee under the ASOP. The fair market value of Common Stock
is determined by an independent valuation firm. The ultimate funding of this
obligation rests with the Company. Accordingly, the Company has recorded the
potential future obligation to repurchase such securities outside of permanent
equity (see also Note H). Subsequent to the Company's closing of its anticipated
initial public offering, shares of Common Stock held by the ASOP are expected to
be tradable on an established exchange and recording of such amounts outside of
permanent equity will no longer be required (see Note A-11).
NOTE J--CONCENTRATION OF CREDIT RISK
The Company maintains its cash balances in a financial institution located
in Long Beach, California. These balances are insured by the Federal Deposit
Insurance Corporation up to $100,000. At December 31, 1997, the Company had
balances in excess of the insured amount of approximately $3,940,000. The
Company has not experienced any losses in such account and believes it is not
exposed to any significant credit risk on its cash and cash equivalents. The
Company has concentrations of credit risk related to accounts receivable and
revenues. At December 31, 1997, accounts receivable associated with five clients
represented approximately 30% of the accounts receivable balance. Also, for the
year ended December 31, 1997, approximately 15% of total net revenue was
attributable to five clients.
NOTE K--SUBSEQUENT EVENT
The Board of Directors authorized management of the Company to file a
registration statement with the Securities and Exchange Commission permitting
the Company to sell up to 6,000,000 shares of Common Stock to the public (the
"Offering"). In connection with the Offering, the Board of Directors approved a
four-for-one stock split in the form of a stock dividend covering all of the
Company's capital stock and options. All share and per share amounts included in
the accompanying financial statements have been adjusted to reflect the stock
split. In conjunction with the Offering, the Board of Directors authorized,
subject to shareholder approval, the reincorporation of the Company into
Delaware, resulting in a change in the Company's name from FCG Enterprises, Inc.
to First Consulting Group, Inc.
F-18
<PAGE>
FIRST CONSULTING GROUP, INC. AND SUBSIDIARIES
INTERIM CONSOLIDATED BALANCE SHEETS (UNAUDITED).
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
1997
JUNE 30, -------------
1998
-----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents........................................................................ $ 13,957 $ 2,950
Investments available for sale................................................................... 9,928 --
Accounts receivable, less allowance of $600 and $500 in the periods ended June 30, 1998 and
December 31, 1997, respectively................................................................. 16,043 11,846
Work in process.................................................................................. 12,477 8,030
Prepaid expenses................................................................................. 2,682 821
Income tax receivables........................................................................... 132 1,114
Current portion of notes receivable-stockholders................................................. -- 328
----------- -------------
Total current assets....................................................................... 55,219 25,089
Notes receivable-stockholders........................................................................ 1,752 1,368
Property and equipment
Furniture, equipment, and leasehold improvements................................................. 1,988 1,874
Information systems equipment.................................................................... 11,085 9,040
----------- -------------
13,073 10,914
Less accumulated depreciation and amortization....................................................... 7,082 5,641
----------- -------------
5,991 5,273
Other assets
Executive benefit trust.......................................................................... 3,324 2,506
Long term investments............................................................................ 25,722 --
Goodwill......................................................................................... 294 --
Other............................................................................................ 543 189
----------- -------------
29,883 2,695
----------- -------------
Total assets............................................................................... $ 92,845 $ 34,425
----------- -------------
----------- -------------
</TABLE>
<TABLE>
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Line of credit................................................................................... $ -- $ 2,000
Current portion of long-term debt................................................................ 445 871
Accounts payable................................................................................. 2,319 735
Accrued liabilities.............................................................................. 8,079 2,219
Accrued vacation................................................................................. 2,681 1,923
Deferred revenue................................................................................. 527 391
Customer advances................................................................................ 2,269 1,965
Current income tax liability..................................................................... 2,662 --
Deferred income taxes............................................................................ 5,679 5,679
----------- -------------
Total current liabilities.................................................................. 24,661 15,783
Non-current liabilities
Long-term debt, net of current portion........................................................... 177 262
Supplemental executive retirement plan........................................................... 3,333 2,506
Deferred income taxes............................................................................ 447 447
----------- -------------
3,957 3,215
Commitments and contingencies........................................................................ -- --
Put obligation related to Associate 401(k) and Stock Ownership Plan (ASOP) and capital stock......... -- 9,965
Stockholders' equity
Preferred Stock, 10,000,000 shares authorized, no shares issued and outstanding.................. -- --
Common Stock, 50,000,000 shares authorized, 15,924,402 shares issued and outstanding at June 30,
1998 and 12,042,664 shares issued and outstanding at December 31, 1997.......................... 16 12
Additional paid-in capital....................................................................... 66,739 20,822
Retained earnings................................................................................ 7,918 4,215
Deferred compensation-stock incentive agreements................................................. (3,700) (3,635)
Unearned ASOP shares............................................................................. (853) (853)
Notes receivable-stockholders.................................................................... (5,871) (5,134)
Unrealized loss on investments................................................................... (21) --
Loss on currency translation..................................................................... (1) --
Put obligation related to ASOP and capital stock................................................. -- (9,965)
----------- -------------
Total stockholders' equity................................................................. 64,227 5,462
----------- -------------
Total liabilities and stockholders' equity................................................. $ 92,845 $ 34,425
----------- -------------
----------- -------------
</TABLE>
See accompanying notes.
F-19
<PAGE>
FIRST CONSULTING GROUP, INC. AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED).
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
-------------------- --------------------
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net revenue........................................................... $ 31,554 $ 21,673 $ 60,386 $ 41,828
Cost of services...................................................... 17,132 12,659 33,386 24,725
--------- --------- --------- ---------
Gross profit...................................................... 14,422 9,014 27,000 17,103
General and administrative expenses................................... 10,808 7,404 20,737 14,156
Compensation expenses related to stock issuances...................... -- 523 -- 1,046
--------- --------- --------- ---------
Income from operations............................................ 3,614 1,087 6,263 1,901
Other income
Interest income (expense), net.................................... 481 (27) 797 (48)
Other income, net................................................. 8 10 35 101
--------- --------- --------- ---------
Income before income taxes.................................. 4,103 1,070 7,095 1,954
Provision for income taxes............................................ 2,134 593 3,391 1,083
--------- --------- --------- ---------
Net income........................................................ $ 1,969 $ 477 $ 3,704 $ 871
--------- --------- --------- ---------
--------- --------- --------- ---------
Basic net income per share............................................ $ 0.13 $ 0.05 $ 0.25 $ 0.09
Diluted net income per share.......................................... $ 0.12 $ 0.05 $ 0.24 $ 0.09
Shares used in computing basic net income per share................... 15,625 9,564 14,671 9,554
Shares used in diluted net income per share........................... 16,414 10,131 15,372 10,130
</TABLE>
See accompanying notes.
F-20
<PAGE>
FIRST CONSULTING GROUP, INC. AND SUBSIDIARIES
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------------
JUNE 30, JUNE 30,
1998 1997
----------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income............................................................................ $ 3,704 $ 871
Adjustments to reconcile net income................................................... 1,441 3,539
Change in assets and liabilities...................................................... 658 730
----------- ---------
Net cash provided by operating activities............................................. 5,803 5,140
----------- ---------
Cash flows from investing activities:
Purchase of investments............................................................... (35,671) --
Furniture, equipment, and leasehold improvements...................................... (114) (640)
Information systems equipment......................................................... (2,045) (1,331)
Notes receivable stockholders......................................................... (737) (801)
----------- ---------
Net cash used in investing activities................................................. (38,567) (2,772)
----------- ---------
Cash flows from financing activities:
Long term debt........................................................................ (85) (375)
Line of credit........................................................................ (2,000) --
Proceeds from issuance of stock....................................................... 45,921 155
Deferred compensation stock incentive................................................. (65) --
----------- ---------
Net cash generated in financing activities........................................ 43,771 (220)
----------- ---------
Net increase (decrease) in cash and equivalents........................................... 11,007 2,148
Cash and equivalents at beginning of period............................................... 2,950 214
----------- ---------
Cash and equivalents at end of period..................................................... $ 13,957 $ 2,362
----------- ---------
----------- ---------
</TABLE>
See accompanying notes.
F-21
<PAGE>
FIRST CONSULTING GROUP, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The consolidated balance sheets of First Consulting Group, Inc. (the
"Company") at June 30, 1998 and 1997 and consolidated statements of operations
and condensed consolidated statements of cash flows for the periods ended June
30, 1998 and 1997 are unaudited. These financial statements reflect all
adjustments, consisting of only normal recurring adjustments, which, in the
opinion of management, are necessary to fairly present the financial position of
the Company at June 30, 1998 and the results of operations for the three month
periods ended June 30, 1998 and June 30, 1997, and the six month periods ended
June 30, 1998 and June 30, 1997. The results of operations for the six months
ended June 30, 1998 are not necessarily indicative of the results to be expected
for the year ending December 31, 1998. For more complete financial information,
these financial statements should be read in conjunction with the audited
financial statements for the year ended December 31, 1997 included in the
Company's Registration Statement on Form S-1, File No. 333-41121, declared
effective on February 12, 1998.
2. STOCKHOLDERS' EQUITY
On November 25, 1997, a certificate of incorporation was filed with the
state of Delaware forming First Consulting Group, Inc. and authorizing
50,000,000 shares of Common Stock and authorizing 10,000,000 shares of preferred
stock. On January 22, 1998, the Board of Directors of FCG Enterprises, Inc., a
California company, approved a 4-for-1 split of Common Stock in the form of a
stock dividend. On February 10, 1998, FCG Enterprises, Inc., a California
company, merged into First Consulting Group, Inc., a Delaware company. On
February 13, 1998, First Consulting Group, Inc., completed an initial public
offering of its Common Stock in which 3,801,858 shares of Common Stock were sold
by the Company, resulting in net proceeds of approximately $45.1 million; an
additional 812,384 shares of Common Stock were sold by existing stockholders.
3. INVESTMENTS
For purposes of reporting cash flows, cash and cash equivalents include cash
and interest earning deposits or securities with original maturities of three
months or less. Securities available for sale are measured at fair value, with
net unrealized holding gains and losses, net of tax, reported as a net amount as
a separate component of stockholders' equity. The Company has approximately $9.9
million in short term investments and $25.7 in non-current investments
classified as available for sale. Such investments are currently held primarily
in tax-exempt government securities.
F-22
<PAGE>
FIRST CONSULTING GROUP, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. NET INCOME PER SHARE
The following represents a reconciliation of basic and diluted net income
per share for the three month and six month periods ended June 30, 1998 and
1997, respectively (amounts rounded to thousands, except per share data):
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE THREE MONTHS ENDED
JUNE 30, 1998 JUNE 30, 1997
----------------------------------- -------------------------------------
WEIGHTED WEIGHTED
AVERAGE PER SHARE AVERAGE PER SHARE
INCOME SHARES AMOUNT INCOME SHARES AMOUNT
--------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS:
Income available to Common Stockholders....... $ 1,969 15,625 $ 0.126 $ 477 9,564 $ 0.050
Effect of dilutive securities:
Options:...................................... 789 567
--------- ----------- ----------- ----- ----------- -----------
Diluted EPS:
Income available to Common Stockholders
and assumed conversions..................... $ 1,969 16,414 $ 0.120 $ 477 10,131 $ 0.047
--------- ----------- ----------- ----- ----------- -----------
--------- ----------- ----------- ----- ----------- -----------
</TABLE>
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED FOR THE SIX MONTHS ENDED
JUNE 30, 1998 JUNE 30, 1997
----------------------------------- -------------------------------------
WEIGHTED WEIGHTED
AVERAGE PER SHARE AVERAGE PER SHARE
INCOME SHARES AMOUNT INCOME SHARES AMOUNT
--------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS:
Income available to Common Stockholders....... $ 3,704 14,671 $ 0.252 $ 871 9,554 $ 0.091
Effect of dilutive securities:
Options:...................................... 701 576
--------- ----------- ----------- ----- ----------- -----------
Diluted EPS:
Income available to Common Stockholders and
assumed conversions......................... $ 3,704 15,372 $ 0.241 $ 871 10,130 $ 0.086
--------- ----------- ----------- ----- ----------- -----------
--------- ----------- ----------- ----- ----------- -----------
</TABLE>
F-23
<PAGE>
APPENDIX A
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
AND
REORGANIZATION
AMONG
FIRST CONSULTING GROUP, INC.,
A DELAWARE CORPORATION;
FOXTROT ACQUISITION SUB, INC.,
A DELAWARE CORPORATION;
AND
INTEGRATED SYSTEMS CONSULTING GROUP, INC.,
A PENNSYLVANIA CORPORATION
---------------------
DATED AS OF SEPTEMBER 9, 1998
------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
SECTION 1. DESCRIPTION OF TRANSACTION.................................... A-1
1.1 Merger of Merger Sub into the Company............................. A-1
1.2 Effect of the Merger.............................................. A-2
1.3 Closing; Effective Time........................................... A-2
1.4 Certificate of Incorporation and Bylaws; Directors and Officers... A-2
1.5 Conversion of Shares.............................................. A-2
1.6 Stock Options and Warrants........................................ A-3
1.7 Closing of the Company's Transfer Books........................... A-3
1.8 Exchange of Certificates.......................................... A-3
1.9 Dissenting Shares................................................. A-4
1.10 Tax Consequences.................................................. A-5
1.11 Accounting Consequences........................................... A-5
1.12 Further Action.................................................... A-5
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY................. A-5
2.1 Due Organization; Subsidiaries; Etc............................... A-5
2.2 Articles of Incorporation and Bylaws.............................. A-5
2.3 Capitalization, Etc............................................... A-6
2.4 SEC Filings; Financial Statements................................. A-7
2.5 Absence of Changes................................................ A-8
2.6 Leasehold; Equipment.............................................. A-9
2.7 Title to Assets................................................... A-10
2.8 Receivables; Significant Customers................................ A-10
2.9 Proprietary Assets................................................ A-10
2.10 Contracts......................................................... A-12
2.11 Year 2000 Liabilities............................................. A-14
2.12 Compliance with Legal Requirements................................ A-14
2.13 Certain Business Practices........................................ A-14
2.14 Governmental Authorizations....................................... A-14
2.15 Tax Matters....................................................... A-15
2.16 Employee and Labor Matters; Benefit Plans......................... A-16
2.17 Environmental Matters............................................. A-17
2.18 Insurance......................................................... A-18
2.19 Transactions with Affiliates...................................... A-18
2.20 Legal Proceedings; Orders......................................... A-18
2.21 Authority; Inapplicability of Anti-takeover Statutes; Binding
Nature of Agreement............................................. A-19
2.22 No Existing Discussions........................................... A-19
</TABLE>
A-i
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
2.23 Accounting Matters................................................ A-19
2.24 Vote Required..................................................... A-19
2.25 Non-Contravention; Consents....................................... A-19
2.26 Fairness Opinion.................................................. A-20
2.27 Financial Advisor................................................. A-20
2.28 Full Disclosure................................................... A-21
SECTION 3. REPRESENTATIONS AND WARRANTIES OF PARENT AND
MERGER SUB..................................................... A-21
3.1 Organization, Standing and Power.................................. A-21
3.2 Capitalization, Etc............................................... A-21
3.3 SEC Filings; Financial Statements................................. A-22
3.4 Disclosure........................................................ A-22
3.5 Absence of Certain Changes or Events.............................. A-23
3.6 Authority; Binding Nature of Agreement............................ A-23
3.7 Non-Contravention; Consents....................................... A-23
3.8 Vote Required..................................................... A-23
3.9 Valid Issuance.................................................... A-23
3.10 Accounting Matters................................................ A-23
3.11 Fairness Opinion.................................................. A-23
3.12 Tax Matters....................................................... A-24
3.13 Environmental Matters............................................. A-24
3.14 Significant Customers............................................. A-25
3.15 Year 2000 Liabilities............................................. A-25
SECTION 4. CERTAIN COVENANTS OF THE COMPANY.............................. A-25
4.1 Access and Investigation.......................................... A-25
4.2 Operation of the Company's Business............................... A-26
4.3 No Solicitation................................................... A-28
SECTION 5. ADDITIONAL COVENANTS OF THE PARTIES........................... A-29
5.1 Registration Statement; Joint Proxy Statement/Prospectus.......... A-29
5.2 Company Shareholders' Meeting..................................... A-30
5.3 Parent Stockholders' Meeting...................................... A-31
5.4 Regulatory Approvals.............................................. A-31
5.5 Stock Options..................................................... A-32
5.6 Form S-8.......................................................... A-32
5.7 Warrants.......................................................... A-32
5.8 Indemnification of Officers and Directors......................... A-33
5.9 Pooling of Interests; Tax Free Reorganization..................... A-33
5.10 Additional Agreements............................................. A-33
</TABLE>
A-ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
5.11 Confidentiality................................................... A-34
5.12 Disclosure........................................................ A-34
5.13 Tax Matters....................................................... A-34
5.14 Resignation of Officers and Directors............................. A-34
5.15 Nasdaq Listing.................................................... A-35
5.16 FIRPTA Matters.................................................... A-35
5.17 Parent Board of Directors......................................... A-35
5.18 Access to Information............................................. A-35
SECTION 6. CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT AND MERGER
SUB........................................................... A-35
6.1 Accuracy of Representations....................................... A-35
6.2 Performance of Covenants.......................................... A-35
6.3 Effectiveness of Registration Statement........................... A-35
6.4 Stockholder Approval.............................................. A-35
6.5 Consents.......................................................... A-36
6.6 Agreements and Documents.......................................... A-36
6.7 No Material Adverse Change........................................ A-36
6.8 FIRPTA Compliance................................................. A-36
6.9 Listing........................................................... A-36
6.10 No Restraints..................................................... A-36
6.11 No Governmental Litigation........................................ A-36
6.12 No Other Litigation............................................... A-37
SECTION 7. CONDITIONS PRECEDENT TO OBLIGATION OF THE COMPANY............. A-37
7.1 Accuracy of Representations....................................... A-37
7.2 Performance of Covenants.......................................... A-37
7.3 Effectiveness of Registration Statement........................... A-37
7.4 Stockholder Approval.............................................. A-37
7.5 Documents......................................................... A-37
7.6 No Material Adverse Change........................................ A-38
7.7 Listing........................................................... A-38
7.8 No Restraints..................................................... A-38
SECTION 8. TERMINATION................................................... A-38
8.1 Termination....................................................... A-38
8.2 Notice of Termination; Effect of Termination...................... A-39
8.3 Expenses; Termination Fees........................................ A-39
SECTION 9. MISCELLANEOUS PROVISIONS...................................... A-39
9.1 Amendment......................................................... A-39
9.2 Waiver............................................................ A-40
</TABLE>
A-iii
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
9.3 No Survival of Representations and Warranties..................... A-40
9.4 Entire Agreement; Counterparts.................................... A-40
9.5 Applicable Law; Jurisdiction...................................... A-40
9.6 Disclosure Schedule............................................... A-40
9.7 Attorneys' Fees................................................... A-40
9.8 Assignability..................................................... A-41
9.9 Notices........................................................... A-41
9.10 Cooperation....................................................... A-41
9.11 Construction...................................................... A-41
</TABLE>
A-iv
<PAGE>
AGREEMENT AND PLAN
OF
MERGER AND REORGANIZATION
THIS AGREEMENT AND PLAN OF MERGER AND REORGANIZATION ("AGREEMENT") is made
and entered into as of September 9, 1998, by and among: FIRST CONSULTING GROUP,
INC., a Delaware corporation ("PARENT"); FOXTROT ACQUISITION SUB, INC., a
Delaware corporation and a wholly owned subsidiary of Parent ("MERGER SUB"); and
Integrated Systems Consulting Group, Inc., a Pennsylvania corporation (the
"COMPANY"). Certain capitalized terms used in this Agreement are defined in
Exhibit A.
RECITALS
A. Parent, Merger Sub and the Company intend to effect a merger (the
"MERGER") of Merger Sub with and into the Company in accordance with this
Agreement and the Pennsylvania Business Corporation Law of 1988, as amended (the
"PBCL"), and the Delaware General Corporation Law, as amended (the "DGCL"). Upon
consummation of the Merger, Merger Sub will cease to exist, and the Company will
become a wholly-owned subsidiary of Parent.
B. It is intended that the Merger qualify as a tax-free reorganization
within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "CODE"). For accounting purposes, it is intended that the Merger be
treated as a "pooling of interests."
C. The Board of Directors of the Company has (i) determined that the Merger
is consistent with and in furtherance of the long-term strategy of the Company
and fair to, and in the best interests of, the Company and its shareholders,
(ii) approved this Agreement, the Merger and the other transactions contemplated
by this Agreement and (iii) determined to recommend that the shareholders of the
Company adopt and approve this Agreement and approve the Merger.
D. The respective Boards of Directors of Parent and Merger Sub have
approved this Agreement and the Merger.
E. Concurrently with the execution of this Agreement, and as a condition
and inducement to Parent's willingness to enter into this Agreement, each of the
affiliate shareholders of the Company listed on Exhibit B-1 hereto is entering
into a Voting Agreement substantially in the form attached hereto as Exhibit
C-1; and as a condition and inducement to the Company's willingness to enter
into this Agreement, each of the affiliate stockholders of Parent listed on
Exhibit B-2 hereto is entering into a Voting Agreement substantially in the form
attached hereto as Exhibit C-2.
F. Concurrently with the execution of this Agreement, and as a condition
and inducement to Parent's willingness to enter into this Agreement, each of the
Persons identified on Exhibit D-1 hereto is entering into an Affiliate Agreement
substantially in the form attached hereto as Exhibit E-1. Concurrently with the
execution of this Agreement, and as a condition and inducement to the Company's
willingness to enter into this Agreement, each of the Persons identified on
Exhibit D-2 hereto is entering into an Affiliate Agreement substantially in the
form attached hereto as Exhibit E-2.
AGREEMENT
The parties to this Agreement, intending to be legally bound, agree as
follows:
SECTION 1. DESCRIPTION OF TRANSACTION.
1.1 MERGER OF MERGER SUB INTO THE COMPANY. Upon the terms and subject to
the conditions set forth in this Agreement, at the Effective Time (as defined in
Section 1.3), Merger Sub shall be merged with and into the Company, and the
separate existence of Merger Sub shall cease. The Company will continue as the
surviving corporation in the Merger (the "SURVIVING CORPORATION").
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1.2 EFFECT OF THE MERGER. The Merger shall have the effects set forth in
this Agreement and in the applicable provisions of the PBCL and the DGCL.
1.3 CLOSING; EFFECTIVE TIME. The consummation of the transactions
contemplated by this Agreement (the "CLOSING") shall take place at the offices
of Cooley Godward LLP, Five Palo Alto Square, 3000 El Camino Real, Palo Alto,
California, at 10:00 a.m. on a date to be designated by Parent (the "CLOSING
DATE"), which shall be no later than the second business day after satisfaction
or waiver of the conditions set forth in Sections 6 and 7. Contemporaneously
with or as promptly as practicable after the Closing, properly executed articles
of merger conforming to the requirements of the PBCL (the "ARTICLES OF MERGER")
shall be filed with the Department of State of the Commonwealth of Pennsylvania
and a properly executed certificate of merger conforming to the requirements of
the DGCL shall be filed with the Secretary of State of the State of Delaware.
The Merger shall take effect at the later of (a) the time the Articles of Merger
is accepted for filing by the Department of State of the Commonwealth of
Pennsylvania, (b) the time the certificate of merger is accepted for filing by
the Secretary of State of the State of Delaware and (c) at such later time as
may be specified in the Articles of Merger (the "EFFECTIVE TIME").
1.4 CERTIFICATE OF INCORPORATION AND BYLAWS; DIRECTORS AND
OFFICERS. Unless otherwise determined by Parent prior to the Effective Time:
(a) the Articles of Incorporation and Bylaws of the Surviving
Corporation shall be amended and restated as of the Effective Time to
conform to the Amended and Restated Articles of Incorporation and Amended
and Restated Bylaws substantially in the form attached hereto as Exhibits
F-1 and F-2, respectively; PROVIDED, HOWEVER, that at the Effective Time the
Articles of Incorporation of the Surviving Corporation shall be amended so
that the name of the Surviving Corporation shall be Integrated Systems
Consulting Group, Inc.; and
(b) the directors and officers of the Surviving Corporation immediately
after the Effective Time shall be the directors and officers of Merger Sub
immediately prior to the Effective Time, until their respective successors
are elected and qualified or duly appointed, as the case may be.
1.5 CONVERSION OF SHARES.
(a) Subject to Section 1.5(d), at the Effective Time, by virtue of the
Merger and without any further action on the part of Parent, Merger Sub, the
Company or any shareholder of the Company:
(i) any shares of Company Common Stock then held by the Company or
any subsidiary of the Company (or held in the Company's treasury) shall
be canceled;
(ii) any shares of Company Common Stock then held by Parent, Merger
Sub or any other subsidiary of Parent shall be canceled;
(iii) except as provided in clauses "(i)" and "(ii)" above and
subject to Sections 1.5(b) and (d) and Section 1.9, each share of Company
Common Stock then outstanding shall be converted into the right to
receive 0.77 of a share of Parent Common Stock; and
(iv) each share of the Common Stock, no par value per share, of
Merger Sub then outstanding shall be converted into one share of Common
Stock of the Surviving Corporation.
(b) The fraction of a share of Parent Common Stock into which each
outstanding share of Company Common Stock is to be converted pursuant to
Section 1.5(a)(iii) (as such fraction may be adjusted in accordance with
this Section 1.5(b)) is referred to as the "EXCHANGE RATIO." If, between the
date of this Agreement and the Effective Time, the outstanding shares of
Company Common Stock or Parent Common Stock are changed into a different
number or class of shares by reason of any stock split, stock dividend,
reverse stock split, reclassification, recapitalization or other similar
transaction, then the Exchange Ratio shall be appropriately adjusted.
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(c) If any shares of Company Common Stock outstanding immediately prior
to the Effective
Time are unvested or are subject to a repurchase option, risk of forfeiture
or other condition under any applicable restricted stock purchase agreement
or other agreement with the Company, then the shares of Parent Common Stock
issued in exchange for such shares of Company Common Stock will also be
unvested and subject to the same repurchase option, risk of forfeiture or
other condition, and the certificates representing such shares of Parent
Common Stock may accordingly be marked with appropriate legends. The Company
shall take all action that may be necessary to ensure that, from and after
the Effective Time, Parent is entitled to exercise any such repurchase
option or other right set forth in any such restricted stock purchase
agreement or other agreement.
(d) No fractional shares of Parent Common Stock shall be issued in
connection with the Merger, and no certificates for any such fractional
shares shall be issued. In lieu of such fractional shares, any holder of
Company Common Stock who would otherwise be entitled to receive a fraction
of a share of Parent Common Stock (after aggregating all fractional shares
of Parent Common Stock issuable to such holder) shall, upon surrender of
such holder's Company Stock Certificate(s) (as defined in Section 1.7), be
paid in cash the dollar amount (rounded to the nearest whole cent), without
interest, determined by multiplying such fraction by the closing price of a
share of Parent Common Stock on Nasdaq on the Effective Date.
1.6 STOCK OPTIONS AND WARRANTS. At the Effective Time, all Company Options
(as defined in Section 2.3(b)) shall be assumed by Parent in accordance with
Section 5.5, and all Company Warrants (as defined in Section 2.3(c)) shall be
assumed by Parent in accordance with Section 5.7.
1.7 CLOSING OF THE COMPANY'S TRANSFER BOOKS. At the Effective Time: (a)
all shares of Company Common Stock outstanding immediately prior to the
Effective Time shall automatically be canceled and retired and shall cease to
exist, and all holders of certificates representing shares of Company Common
Stock that were outstanding immediately prior to the Effective Time shall cease
to have any rights as shareholders of the Company; and (b) the stock transfer
books of the Company shall be closed with respect to all shares of Company
Common Stock outstanding immediately prior to the Effective Time. No further
transfer of any such shares of Company Common Stock shall be made on such stock
transfer books after the Effective Time. If, after the Effective Time, a valid
certificate previously representing any of such shares of Company Common Stock
(a "COMPANY STOCK CERTIFICATE") is presented to the Exchange Agent (as defined
in Section 1.8) or to the Surviving Corporation or Parent, such Company Stock
Certificate shall be canceled and shall be exchanged as provided in Section 1.8.
1.8 EXCHANGE OF CERTIFICATES.
(a) Prior to the Closing Date, Parent shall select a reputable bank or
trust company to act as exchange agent in the Merger (the "EXCHANGE AGENT").
Promptly after the Effective Time, Parent shall deposit with the Exchange
Agent (i) certificates representing the shares of Parent Common Stock
issuable pursuant to this Section 1 and (ii) cash sufficient to make
payments in lieu of fractional shares in accordance with Section 1.5(d). The
shares of Parent Common Stock and cash amounts so deposited with the
Exchange Agent, together with any dividends or distributions received by the
Exchange Agent with respect to such shares, are referred to collectively as
the "EXCHANGE FUND."
(b) As soon as practicable after the Effective Time, the Exchange Agent
will mail to the registered holders of Company Stock Certificates (i) a
letter of transmittal in customary form and containing such provisions as
Parent may reasonably specify (including a provision confirming that
delivery of Company Stock Certificates shall be effected, and risk of loss
and title to Company Stock Certificates shall pass, only upon delivery of
such Company Stock Certificates to the Exchange Agent), and (ii)
instructions for use in effecting the surrender of Company Stock
Certificates in exchange for certificates representing Parent Common Stock.
Subject to Section 1.5(d), upon surrender of a Company Stock Certificate to
the Exchange Agent for exchange, together with a duly executed letter of
transmittal and such other documents as may be reasonably required by the
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Exchange Agent or Parent, (A) the holder of such Company Stock Certificate
shall be entitled to receive in exchange therefor a certificate representing
the number of shares of Parent Common Stock that such holder has the right
to receive pursuant to the provisions of Section 1.5(a)(iii) together with
any cash in lieu of fractional share(s) pursuant to the provisions of
Section 1.5(d), and (B) the Company Stock Certificate so surrendered shall
be canceled. Until surrendered as contemplated by this Section 1.8(b), each
Company Stock Certificate shall be deemed, from and after the Effective
Time, to represent only the right to receive shares of Parent Common Stock
(and cash in lieu of any fractional share of Parent Common Stock) as
contemplated by Section 1.5. If any Company Stock Certificate shall have
been lost, stolen or destroyed, Parent may, in its discretion and as a
condition precedent to the issuance of any certificate representing Parent
Common Stock, require the owner of such lost, stolen or destroyed Company
Stock Certificate to provide an appropriate affidavit and to deliver a bond
(in such sum as Parent may reasonably direct) as indemnity against any claim
that may be made against the Exchange Agent, Parent or the Surviving
Corporation with respect to such Company Stock Certificate.
(c) No dividends or other distributions declared or made with respect to
Parent Common Stock with a record date after the Effective Time shall be
paid to the holder of any unsurrendered Company Stock Certificate with
respect to the shares of Parent Common Stock represented thereby, until such
holder surrenders such Company Stock Certificate in accordance with this
Section 1.8 (at which time such holder shall be entitled to receive all such
dividends and distributions, without interest).
(d) Any portion of the Exchange Fund that remains undistributed to
holders of Company Stock Certificates as of the date 180 days after the date
on which the Merger becomes effective shall be delivered to Parent upon
demand, and any holders of Company Stock Certificates who have not
theretofore surrendered their Company Stock Certificates in accordance with
this Section 1.8 shall thereafter look only to Parent for satisfaction of
their claims for Parent Common Stock, cash in lieu of fractional shares of
Parent Common Stock and any dividends or distributions with respect to
Parent Common Stock.
(e) Each of the Exchange Agent, Parent and the Surviving Corporation
shall be entitled to deduct and withhold from any consideration payable or
otherwise deliverable pursuant to this Agreement to any holder or former
holder of Company Common Stock such amounts as may be required to be
deducted or withheld therefrom under the Code or under any provision of
state, local or foreign tax law or under any other applicable Legal
Requirement. To the extent such amounts are so deducted or withheld, such
amounts shall be treated for all purposes under this Agreement as having
been paid to the Person to whom such amounts would otherwise have been paid.
(f) Neither Parent nor the Surviving Corporation shall be liable to any
holder or former holder of Company Common Stock with respect to any shares
of Parent Common Stock (or dividends or distributions with respect thereto),
or for any cash amounts, delivered to any public official pursuant to any
applicable abandoned property, escheat or similar Legal Requirement.
1.9 DISSENTING SHARES. Notwithstanding anything in this Agreement to the
contrary, shares, if any, of Company Common Stock that are issued and
outstanding immediately prior to the Effective Time that are held by any
shareholder who has not voted such shares in favor of the Merger and who shall
have delivered a written notice of intention to demand payment of fair value of
such shares in the manner provided in Section 1574 of the PBCL ("DISSENTING
SHARES") shall not be converted into or be exchangeable for the right to receive
the consideration provided in Section 1.5(a)(iii) (or cash in lieu of fractional
shares in accordance with Section 1.5(d)) unless and until such holder shall
have failed to perfect or shall have effectively withdrawn or lost his right to
be paid fair value under the PBCL. If such holder shall have failed to perfect
or have effectively withdrawn or lost such right, his shares of Company Common
Stock shall thereupon be deemed to have been converted into and to have become
exchangeable for, at the Effective
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Time, the right to receive the consideration provided in Section 1.5(a)(iii) (or
cash in lieu of fractional shares in accordance with Section 1.5(d)) without any
interest thereon.
1.10 TAX CONSEQUENCES. For federal income tax purposes, the Merger is
intended to constitute a reorganization within the meaning of Section 368 of the
Code. The parties to this Agreement hereby adopt this Agreement as a "plan of
reorganization" within the meaning of Sections 1.368-2(g) and 1.368-3(a) of the
United States Treasury Regulations.
1.11 ACCOUNTING CONSEQUENCES. For accounting purposes, the Merger is
intended to be treated as a "pooling of interests."
1.12 FURTHER ACTION. If, at any time after the Effective Time, any further
action is determined by Parent to be necessary or desirable to carry out the
purposes of this Agreement or to vest the Surviving Corporation with full right,
title and possession of and to all rights and property of Merger Sub and the
Company, the officers and directors of the Surviving Corporation and Parent
shall be fully authorized (in the name of Merger Sub, in the name of the Company
and otherwise) to take such action.
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to Parent and Merger Sub that, except as
set forth in the disclosure schedule that has been prepared by the Company in
accordance with the requirements of Section 9.6 and that has been delivered by
the Company to Parent on the date of this Agreement and signed by the President
of the Company (the "COMPANY DISCLOSURE SCHEDULE"):
2.1 DUE ORGANIZATION; SUBSIDIARIES; ETC.
(a) The Company has no Subsidiaries, except for the corporations
identified in Part 2.1(a)(i) of the Company Disclosure Schedule; and neither
the Company nor any of the other corporations identified in Part 2.1(a)(i)
of the Company Disclosure Schedule owns any capital stock of, or any equity
interest of any nature in, any other Entity. (The Company and each of its
Subsidiaries are referred to collectively in this Agreement as the "ACQUIRED
CORPORATIONS".) None of the Acquired Corporations has agreed or is obligated
to make, or is bound by any Contract under which it may become obligated to
make, any future investment in or capital contribution to any other Entity.
None of the Acquired Corporations has, at any time, been a general partner
of any general partnership, limited partnership or other Entity.
(b) Each of the Acquired Corporations is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of
its incorporation and has all corporate power and authority: (i) to conduct
its business in the manner in which its business is currently being
conducted; (ii) to own and use its assets in the manner in which its assets
are currently owned and used; and (iii) to perform its obligations under all
Contracts by which it is bound.
(c) None of the Acquired Corporations is or has been required to be
qualified, authorized, registered or licensed to do business as a foreign
corporation in any jurisdiction other than the jurisdictions identified in
Part 2.1(c) of the Company Disclosure Schedule, except where the failure to
be so qualified, authorized, registered or licensed has not had and will not
have a Material Adverse Effect on the Acquired Corporations. Each of the
Acquired Corporations is in good standing as a foreign corporation in each
of the respective jurisdictions identified in Part 2.1(c) of the Company
Disclosure Schedule.
2.2 ARTICLES OF INCORPORATION AND BYLAWS. The Company has delivered to
Parent accurate and complete copies of the articles of incorporation, bylaws and
other charter and organizational documents of the respective Acquired
Corporations, including all amendments thereto. None of the Acquired
Corporations is in violation of any of the provisions of its articles of
incorporation or bylaws or equivalent governing instruments.
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2.3 CAPITALIZATION, ETC.
(a) The authorized capital stock of the Company consists of: (i)
twenty-five million (25,000,000) shares of Company Common Stock, $.005 par
value per share, of which, as of August 31, 1998, 8,076,404 shares (which
amount does not materially differ from the amount issued and outstanding as
of the date of this Agreement) have been issued and are outstanding; and
(ii) five hundred thousand (500,000) shares of preferred stock, $1.00 par
value per share, of which no shares are outstanding as of the date of this
Agreement. All of the outstanding shares of Company Common Stock have been
duly authorized and validly issued, and are fully paid and nonassessable. As
of the date of this Agreement, there are 1,151,109 shares of Company Common
Stock held in treasury by the Company and no shares of stock held in
treasury by any of the other Acquired Corporations. (i) None of the
outstanding shares of Company Common Stock is entitled or subject to any
preemptive right, right of participation, right of maintenance or any
similar right; (ii) none of the outstanding shares of Company Common Stock
is subject to any right of first refusal in favor of the Company; and (iii)
there is no Acquired Corporation Contract relating to the voting or
registration of, or restricting any Person from purchasing, selling,
pledging or otherwise disposing of (or granting any option or similar right
with respect to), any shares of Company Common Stock. Upon consummation of
the Merger, (A) the shares of Parent Common Stock issued in exchange for any
shares of Company Common Stock that are subject to a Contract pursuant to
which the Company has the right to repurchase, redeem or otherwise reacquire
any shares of Company Common Stock will, without any further act of Parent,
the Company or any other Person, become subject to the restrictions,
conditions and other provisions contained in such Contract, and (B) Parent
will automatically succeed to and become entitled to exercise the Company's
rights and remedies under any such Contract. None of the Acquired
Corporations is under any obligation to repurchase, redeem or otherwise
acquire any outstanding shares of Company Common Stock.
(b) As of August 31, 1998, 957,725 shares (which amount does not
materially differ from the amount subject to options outstanding as of the
date of this Agreement) of Company Common Stock are subject to issuance
pursuant to outstanding options to purchase Company Common Stock. (Stock
options granted by the Company pursuant to the Company's stock option plans
are referred to in this Agreement as "COMPANY OPTIONS.") Part 2.3(b)(i) of
the Company Disclosure Schedule sets forth the following information with
respect to each Company Option outstanding as of August 31, 1998: (i) the
particular plan pursuant to which such Company Option was granted; (ii) the
name of the optionee; (iii) the number of shares of Company Common Stock
subject to such Company Option; (iv) the exercise price of such Company
Option; (v) the date on which such Company Option was granted; (vi) the
applicable vesting schedule and the extent to which such Company Option is
vested and exercisable as of the date of this Agreement; and (vii) the date
on which such Company Option expires. The Company has delivered to Parent
accurate and complete copies of all stock option plans pursuant to which the
Company has ever granted stock options and the form of all stock option
agreements evidencing such options. There are no commitments or agreements
of any character to which the Company is bound obligating the Company to
accelerate the vesting of any Company Option.
(c) As of the date of this Agreement, six hundred seventy-nine thousand,
seven hundred twenty-three (679,723) shares of Company Common Stock are
subject to issuance pursuant to outstanding warrants to purchase Company
Common Stock ("COMPANY WARRANTS"). Part 2.3(c) of the Company Disclosure
Schedule sets forth the following information with respect to each Company
Warrant outstanding as of the date of this Agreement: (i) the name of the
warrant holder; (ii) the number of shares of Company Common Stock subject to
such Company Warrant; (iii) the exercise price of such Company Warrant; (iv)
the date on which such Company Warrant was granted; (v) the applicable
vesting schedule and the extent to which such Company Warrant is vested and
exercisable as of the date of this Agreement; and (vii) the date on which
such Company Warrant expires. The Company has
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delivered to Parent accurate and complete copies of all agreements,
certificates and other documents evidencing all warrants which the Company
has ever granted.
(d) Except as set forth in Parts 2.3(b), 2.3(c) or 2.3(d) of the Company
Disclosure Schedule there is no: (i) outstanding subscription, option, call,
warrant or right (whether or not currently exercisable) to acquire any
shares of the capital stock or other securities of the Company; (ii)
outstanding security, instrument or obligation that is or may become
convertible into or exchangeable for any shares of the capital stock or
other securities of the Company; (iii) shareholder rights plan (or similar
plan commonly referred to as a "poison pill") or Contract under which the
Company is or may become obligated to sell or otherwise issue any shares of
its capital stock or any other securities; or (iv) condition or circumstance
that may give rise to or provide a basis for the assertion of a claim by any
Person to the effect that such Person is entitled to acquire or receive any
shares of capital stock or other securities of the Company.
(e) All outstanding shares of Company Common Stock, all outstanding
Company Options, all outstanding Company Warrants and all outstanding shares
of capital stock of each Subsidiary of the Company have been issued and
granted in compliance with (i) all applicable securities laws and other
applicable Legal Requirements, and (ii) all requirements set forth in
applicable Contracts.
(f) All of the outstanding shares of capital stock of each of the
Entities identified in Part 2.1(a)(i) of the Company Disclosure Schedule are
validly issued, fully paid and nonassessable and are owned beneficially and
of record by the Company, free and clear of any Encumbrances.
2.4 SEC FILINGS; FINANCIAL STATEMENTS.
(a) The Company has delivered to Parent accurate and complete copies of
all registration statements, proxy statements and other statements, reports,
schedules, forms and other documents filed by the Company with the SEC and
will deliver to Parent accurate and complete copies of all such registration
statements, proxy statements and other statements, reports, schedules, forms
and other documents filed after the date of this Agreement and prior to the
Effective Time (collectively, the "COMPANY SEC DOCUMENTS"). All statements,
reports, schedules, forms and other documents required to have been filed by
the Company with the SEC have been so filed. As of the time it was filed
with the SEC (or, if amended or superseded by a later filing, then on the
date of such filing): (i) each of the Company SEC Documents filed with the
SEC complied in all material respects with the applicable requirements of
the Securities Act or the Exchange Act (as the case may be) as of the date
of such filing and any Company SEC Documents filed after the date hereof
will so comply; and (ii) none of the Company SEC Documents contained any
untrue statement of material fact or omitted to state a material fact
required to be state therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
(b) The consolidated financial statements (including any related notes)
contained in the Company SEC Documents filed with the SEC (the "COMPANY
FINANCIAL STATEMENTS"): (i) complied as to form in all material respects
with the published rules and regulations of the SEC applicable thereto; (ii)
were prepared in accordance with generally accepted accounting principles
("GAAP") applied on a consistent basis throughout the periods covered
(except as may be indicated in the notes to such financial statements or, in
the case of unaudited statements, as permitted by Form 10-Q of the SEC, and
except that the unaudited financial statements may not contain footnotes and
other information required for complete financial statements), and (iii)
fairly present the consolidated financial position of the Company and its
subsidiaries as of the respective dates thereof and the consolidated results
of operations of the Company and its subsidiaries for the periods covered
thereby. All adjustments (consisting of recurring accruals) considered
necessary for a fair presentation of the financial statements have been
included. The audited consolidated balance sheet of the Company and its
subsidiaries included in the Company's Annual Report on Form 10-K for the
year ended December 31, 1997 is sometimes referred to herein as the "COMPANY
BALANCE SHEET" and the unaudited
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consolidated balance sheet of the Company and its subsidiaries as of June
30, 1998 included in the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1998 is sometimes referred to herein as the "COMPANY
UNAUDITED INTERIM BALANCE SHEET." All financial statements (including any
related notes) contained in Company SEC Documents filed after the date
hereof shall meet the conditions set forth in (i), (ii) and (iii) of this
Section 2.4(b).
2.5 ABSENCE OF CHANGES. Since the date of the Company Unaudited Interim
Balance Sheet:
(a) there has not been any material adverse change in the business,
condition, assets, liabilities, operations, financial performance or
prospects of the Acquired Corporations taken as a whole, and no event has
occurred that could reasonably be expected to have a Material Adverse Effect
on the Acquired Corporations;
(b) there has not been any material loss, damage or destruction to, or
any material interruption in the use of, any of the assets of any of the
Acquired Corporations (whether or not covered by insurance);
(c) none of the Acquired Corporations has (i) declared, accrued, set
aside or paid any dividend or made any other distribution in respect of any
shares of capital stock, or (ii) repurchased, redeemed or otherwise
reacquired any shares of capital stock or other securities;
(d) none of the Acquired Corporations has sold, issued, granted or
authorized the issuance or grant of (i) any capital stock or other security
(except for Company Common Stock issued upon the exercise of outstanding
Company Options or Company Warrants), (ii) any option, call, warrant or
right to acquire any capital stock or any other security (except for Company
Options described in Part 2.3(b)(i) of the Company Disclosure Schedule), or
(iii) any instrument convertible into or exchangeable for any capital stock
or other security;
(e) the Company has not amended or waived any of its rights under, or
permitted the acceleration of vesting under, (i) any provision of any of the
Company's stock option plans, (ii) any provision of any agreement evidencing
any outstanding Company Option or Company Warrant, or (iii) any restricted
stock purchase agreement;
(f) except as provided in Part 2.5(f) of the Company Disclosure
Schedule, there has been no amendment to the articles of incorporation,
bylaws or other charter or organizational documents of any of the Acquired
Corporations, and none of the Acquired Corporations has effected or been a
party to any merger, consolidation, share exchange, business combination,
recapitalization, reclassification of shares, stock split, reverse stock
split or similar transaction;
(g) except as provided in Part 2.5(g) of the Company Disclosure
Schedule, none of the Acquired Corporations has (i) received any Acquisition
Proposal, or (ii) solicited, initiated, encouraged or induced, or provided
any nonpublic information to or entered into any discussions with any Person
for the purpose of soliciting, initiating, encouraging or inducing, the
making or submission of any Acquisition Proposal;
(h) none of the Acquired Corporations has formed any subsidiary or
acquired any equity interest or other interest in any other Entity;
(i) none of the Acquired Corporations has made any capital expenditures
which exceed $800,000 in the aggregate;
(j) except in the ordinary course of business and consistent with past
practices, none of the Acquired Corporations has (i) entered into or
permitted any of the assets owned or used by it to become bound by any
Material Contract (as defined in Section 2.10), or (ii) amended or
prematurely terminated, or waived any material right or remedy under, any
Material Contract;
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(k) none of the Acquired Corporations has (i) acquired, leased or
licensed any material right or other material asset from any other Person,
(ii) sold or otherwise disposed of, or leased or licensed, any material
right or other material asset to any other Person, or (iii) waived or
relinquished any right, except for rights or other assets acquired, leased,
licensed or disposed of in the ordinary course of business and consistent
with past practices;
(l) none of the Acquired Corporations has written off as uncollectible,
or established any extraordinary reserve with respect to, any account
receivable or other indebtedness in excess of $25,000 with respect to any
single matter, or in excess of $50,000 in the aggregate;
(m) except as set forth on Part 2.5(m) of the Company Disclosure
Schedule, none of the Acquired Corporations has made any pledge of any of
its assets or otherwise permitted any of its assets to become subject to any
Encumbrance, except for pledges of immaterial assets made in the ordinary
course of business and consistent with past practices;
(n) except as set forth in Part 2.5(n) of the Company Disclosure
Schedule and except for intercompany indebtedness among the Acquired
Corporations and relocation and travel advances referred to in Section
2.8(b), none of the Acquired Corporations has (i) lent money to any Person,
or (ii) incurred or guaranteed any indebtedness for borrowed money;
(o) except as provided in Part 2.5(o) of the Company Disclosure
Schedule, none of the Acquired Corporations has (i) established or adopted
any Plan (as defined in Section 2.16(a)), (ii) caused or permitted any Plan
to be amended in any material respect, or (iii) paid any bonus or made any
profit-sharing or similar payment to, or materially increased the amount of
the wages, salary, commissions, fringe benefits or other compensation or
remuneration payable to, any of its directors, officers or employees;
(p) none of the Acquired Corporations has changed any of its methods of
accounting or accounting practices in any respect;
(q) none of the Acquired Corporations has made any material election
with respect to Taxes;
(r) except as set forth in Part 2.5(r) of the Company Disclosure
Schedule, none of the Acquired Corporations has commenced or settled any
Legal Proceeding;
(s) none of the Acquired Corporations has entered into any material
transaction or taken any other material action that has had, or could
reasonably be expected to have, a Material Adverse Effect on the Acquired
Corporations; and
(t) except as set forth in Part 2.5(t) of the Company Disclosure
Schedule, none of the Acquired Corporations has agreed or committed to take
any of the actions referred to in clauses "(c)" through "(s)" above.
2.6 LEASEHOLD; EQUIPMENT. None of the Acquired Corporations own any real
property or any interest in real property, except for the leaseholds created
under the real property leases identified in Part 2.6 of the Company Disclosure
Schedule. All such real property is being leased pursuant to lease agreements
that are in full force and effect, are valid and effective in accordance with
their respective terms, and there is not, under any of such leases, any existing
default or event of default (or event which with notice or lapse of time, or
both, would constitute a default) that would result in a Material Adverse Effect
on the Acquired Corporations. Part 2.6 of the Company Disclosure Schedule
accurately identifies all material items of equipment leased by the Acquired
Corporations. All material items of equipment and other tangible assets owned by
or leased to the Acquired Corporations are adequate for the uses to which they
are being put, are in good condition and repair (ordinary wear and tear
excepted) and are adequate for the conduct of the business of the Acquired
Corporations in the manner in which such business is currently being conducted.
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2.7 TITLE TO ASSETS. The Acquired Corporations own, and have good, valid
and marketable title to, or in the case of leased properties and assets, valid
leasehold interests in, all of their respective tangible properties and assets,
real, personal and mixed, used or held for use in their business, including: (i)
all assets reflected on the Company Unaudited Interim Balance Sheet; and (ii)
all other assets reflected in the books and records of the Acquired Corporations
as being owned or leased by the Acquired Corporations. Except as set forth in
Part 2.7 of the Company Disclosure Schedule, all of said assets are owned or
leased by the Acquired Corporations free and clear of any Encumbrances, except
for (x) any lien for current taxes not yet due and payable, and (y) minor liens
that have arisen in the ordinary course of business and that do not (in any case
or in the aggregate) materially detract from the value of the assets subject
thereto or materially impair the operations of any of the Acquired Corporations.
2.8 RECEIVABLES; SIGNIFICANT CUSTOMERS.
(a) Part 2.8 of the Company Disclosure Schedule provides an accurate and
complete breakdown and aging of all accounts receivable of the Acquired
Corporations as of the date of the Company Unaudited Interim Balance Sheet.
All existing accounts receivable of the Acquired Corporations (including
those accounts receivable reflected on the Company Unaudited Interim Balance
Sheet that have not yet been collected and those accounts receivable that
have arisen since the date of the Company Unaudited Interim Balance Sheet
and have not yet been collected) (i) represent valid obligations of
customers of the Acquired Corporations arising from bona fide transactions
entered into in the ordinary course of business, (ii) are current and will
be collected in full when due, without any counterclaim or set off and are
not subject to any dispute or threat of nonpayment (net of the allowance for
doubtful accounts set forth on the Company Unaudited Interim Balance Sheet
and an additional amount not to exceed $250,000 in the aggregate) and (iii)
represent revenues that have been recognized in accordance with GAAP.
(b) Part 2.8(b) of the Company Disclosure Schedule contains an accurate
and complete list as of August 31, 1998 of all loans and advances made by
any of the Acquired Corporations to any employee, director, consultant or
independent contract of such Acquired Corporation, other than routine travel
or relocation advances made to employees in the ordinary course of business,
which loan and advances do not materially differ from the loans and advances
as of the date of this Agreement.
(c) Part 2.8(c) of the Company Disclosure Schedule sets forth a complete
and accurate list of all Significant Customers. For purposes of this
Agreement, "SIGNIFICANT CUSTOMERS" are the twenty (20) customers of the
Company that have effected the most purchases, in dollar terms, and
accounted for the most revenues, in dollar terms, during the four (4) fiscal
quarter period ended June 30, 1998. None of the Company's Significant
Customers has canceled, returned or substantially reduced or, to the
knowledge of the Company, is currently attempting or threatening to cancel,
return or substantially reduce, any purchases from, orders to or services
provided by the Company. The Company has not received any material customer
complaints concerning its products and/or services.
2.9 PROPRIETARY ASSETS.
(a) Part 2.9(a)(i) of the Company Disclosure Schedule sets forth, with
respect to each Company Proprietary Asset registered with any Governmental
Body or for which an application has been filed with any Governmental Body,
(i) a brief description of such Proprietary Asset, and (ii) the names of the
jurisdictions covered by the applicable registration or application. The
Company owns no Proprietary Assets other than the Company Proprietary Assets
set forth in Part 2.9(a)(i) of the Company Disclosure Schedule. Part
2.9(a)(iii) of the Disclosure Schedule identifies and provides a brief
description of each Proprietary Asset licensed to the Company by any Person
(except for any Proprietary Asset that is licensed to the Company under any
third party software license generally available to the public at a cost of
less than $10,000), and identifies the license agreement under which such
Proprietary Asset is being licensed to the Company. To the best of the
knowledge of the Company, the Company has good, valid and marketable title
to all of the Company Proprietary Assets
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identified in Parts 2.9(a)(i) and 2.9(a)(ii) of the Disclosure Schedule,
free and clear of all liens and other Encumbrances, and has a valid right to
use all Proprietary Assets identified in Part 2.9(a)(iii) of the Disclosure
Schedule. Except as set forth in Part 2.9(a)(v) of the Disclosure Schedule,
to the best of the knowledge of the Company, the Company is not obligated to
make any payment to any Person for the use of any Company Proprietary Asset.
The Company has not developed jointly with any other Person any Company
Proprietary Asset with respect to which such other Person has any rights.
(b) The Company has taken all commercially reasonable measures and
precautions necessary to protect and maintain the confidentiality and
secrecy of all Company Proprietary Assets (except Company Proprietary Assets
whose value would be unimpaired by public disclosure) and otherwise to
maintain and protect the value of all Company Proprietary Assets.
(c) To the best of the knowledge of the Company, none of the Company
Proprietary Assets infringes or conflicts with any Proprietary Asset owned
or used by any other Person. Except as set forth in Part 2.9(c) of the
Company Disclosure Schedule, to the best of the knowledge of the Company,
the Company is not infringing, misappropriating or making any unlawful use
of, and the Company has not at any time infringed, misappropriated or made
any unlawful use of, or received any notice or other communication (in
writing or otherwise) of any actual, alleged, possible or potential
infringement, misappropriation or unlawful use of, any Proprietary Asset
owned or used by any other Person. To the best of the knowledge of the
Company, no other Person is infringing, misappropriating or making any
unlawful use of, and no Proprietary Asset owned or used by any other Person
infringes or conflicts with, any Company Proprietary Asset.
(d) (i) Each Company Proprietary Asset conforms in all material respects
with any specification, documentation, performance standard, representation
or statement made or provided with respect thereto by or on behalf of the
Company; and (ii) there has not been any claim by any customer or other
Person alleging that any Company Proprietary Asset (including each version
thereof that has ever been licensed or otherwise made available by the
Company to any Person) does not conform in all material respects with any
specification, documentation, performance standard, representation or
statement made or provided by or on behalf of the Company, and, to the best
of the knowledge of the Company, there is no basis for any such claim. To
the best of the knowledge of the Company, the Company has established
adequate reserves on the Company Unaudited Interim Balance Sheet to cover
all costs associated with any obligations that the Company may have with
respect to the correction or repair of programming errors or other defects
in the Company Proprietary Assets.
(e) The Company Proprietary Assets constitute all the Proprietary Assets
necessary to enable the Company to conduct its business in the manner in
which such business has been and is being conducted. Except as set forth in
Part 2.9(e) of the Company Disclosure Schedule, (i) the Company has not
licensed any of the Company Proprietary Assets to any Person on an exclusive
basis, and (ii) the Company has not entered into any covenant not to compete
or Contract limiting its ability to exploit fully any of its Proprietary
Assets or to transact business in any market or geographical area or with
any Person.
(f) All employees set forth in Part 2.9(f) of the Company Disclosure
Schedule have executed and delivered an agreement to the Company (containing
no exceptions to or exclusions from the scope of its coverage) that is
substantially identical to the form of Employment Agreement or Employee
Agreement previously delivered to Parent by the Company. Substantially all
other current and substantially all former employees of the Company have
executed and delivered to the Company an agreement (containing no exceptions
to or exclusions from the scope of its coverage) that is substantially
identical to the form of confidential information and invention assignment
agreement previously delivered to Parent. Substantially all current and
former consultants and independent contractors to the Company have executed
and delivered to the Company an agreement (containing no exceptions to or
exclusions from the scope of its coverage) that is substantially identical
to the form
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of consultant confidential information and invention assignment agreement
previously delivered to Parent.
(g) Except as set forth in Part 2.9(g) of the Company Disclosure
Schedule, to the best of the knowledge of the Company, each of the Acquired
Corporations has taken adequate steps to ensure that all software (and
related Proprietary Assets) used in its operations are Year 2000 Compliant
(as defined below). For purposes of this Agreement, "YEAR 2000 COMPLIANT"
shall mean that software that can individually, and in combination and in
conjunction with all other systems, products or processes with which they
are required or designed to interface, continue to be used normally and to
operate successfully (both in functionality and performance in all material
respects) over the transition into the twenty first century when used in
accordance with the documentation relating to all software (and related
Acquired Corporation Proprietary Assets) that is sold, licensed or
transferred by any Acquired Corporation to any Person, including being able
to, before, on and after January 1, 2000 substantially conform to the
following: (i) use logic pertaining to dates which allow users to identify
and/or use the century portion of any date fields without special
processing; and (ii) respond to all date elements and date input so as to
resolve any ambiguity as to century in a disclosed, defined and
pre-determined manner and provide date information in ways which are
unambiguous as to century, either by permitting or requiring the century to
be specified or where the data element is represented without a century, the
correct century is unambiguous for all manipulations involving that element.
2.10 CONTRACTS.
(a) Part 2.10 of the Company Disclosure Schedule identifies each
Acquired Corporation Contract that constitutes a "Material Contract." For
purposes of this Agreement, each of the following shall be deemed to
constitute a "MATERIAL CONTRACT":
(i) (A) any Contract or outstanding offer relating to the employment
of, or the performance of services by, any employee, (B) any Contract
pursuant to which any of the Acquired Corporations is required to make
any severance, termination or similar payment, bonus or relocation
payment or any other payment (other than payments in respect of salary)
to any current or former employee or director of any of the Acquired
Corporations and (C) any Contract or Plan (including, without limitation,
any stock option plan, stock appreciation plan or stock purchase plan),
any of the benefits of which may be increased, or the vesting of benefits
of which may be accelerated;
(ii) any Contract (A) relating to the acquisition, transfer,
development, sharing, license (to or by any of the Acquired
Corporations), use or other exploitation of any Proprietary Asset (except
for any Contract pursuant to which any Proprietary Asset is licensed to
the Acquired Corporations under any third party software license
generally available to the public); or (B) with respect to the
distribution or marketing of any products of the Acquired Corporations;
(iii) any Contract which provides for indemnification of any officer,
director, employee or agent of any of the Acquired Corporations;
(iv) any Contract imposing any restriction on the right or ability
of any Acquired Corporation (A) to compete in any market or geographic
area with any other Person, (B) to acquire any product or other asset or
any services from any other Person, to sell any product or other asset to
or perform any services for any other Person or to transact business or
deal in any other manner with any other Person, or (C) to develop or
distribute any technology;
(v) any Contract (A) relating to the acquisition, issuance, voting,
registration, sale or transfer of any securities (other than the issuance
of Company Common Stock upon the valid exercise of Company Options or
Company Warrants outstanding as of the date of this Agreement), (B)
providing any Person with any preemptive right, right of participation,
right of
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maintenance or any similar right with respect to any securities, or (C)
providing the Company with any right of first refusal with respect to, or
right to repurchase or redeem, any securities;
(vi) any Contract requiring that the Company give any notice or
provide any information to any Person prior to accepting any Acquisition
Proposal;
(vii) any Contract that (A) contemplates or involves payment or
delivery of cash or other consideration in an amount or having a value in
excess of $7,500 per month and (B) has a term of more than 90 days and
that may not be terminated by such Acquired Corporation within 90 days
after the delivery of a termination notice by such Acquired Corporation;
(viii) any Contract that contemplates or involves payment or delivery
of cash or other consideration by any of the Acquired Corporations in an
amount or having a value in excess of $100,000 in the aggregate;
(ix) except as set forth in Part 2.10(a)(ix) of the Company
Disclosure Schedule, any Contract or Plan (including, without limitation,
any stock option plan, stock appreciation plan or stock purchase plan),
any of the benefits of which will be increased, or the vesting of
benefits of which will be accelerated, by the execution of this Agreement
or the consummation of any of the transactions contemplated by this
Agreement or the value of any of the benefits of which will be calculated
on the basis of any of the transactions contemplated by this Agreement;
(x) any joint marketing or development Contract currently in force
under which an Acquired Corporation has continuing material obligations
to jointly market any product, technology or service and which may not be
canceled without penalty upon notice of 30 days or less, or any material
Contract pursuant to which an Acquired Corporation has continuing
material obligations to jointly develop any Proprietary Asset that will
not be owned, in whole or in part, by an Acquired Corporation and which
may not be canceled without penalty upon notice of 90 days or less;
(xi) any Contract currently in force to disclose or deliver to any
Person, or permit the disclosure or delivery to any escrow agent or other
Person, of the source code, or any portion or aspect of the source code,
or any proprietary information or algorithm contained in or relating to
any source code, of any Acquired Corporation Proprietary Asset that is
material to the Acquired Corporations taken as a whole;
(xii) any Contract (not otherwise identified in clauses "(i)" through
"(xi)" of this sentence) that is or would be material to any of the
Acquired Corporations, to the business, condition, capitalization or
operations of any of the Acquired Corporations or to any of the
transactions contemplated by this Agreement; and
(xiii) any other Contract, if a breach of such Contract could
reasonably be expected to have a Material Adverse Effect on the Acquired
Corporations.
(b) Each Material Contract is valid and in full force and effect, and is
enforceable by an Acquired Corporation in accordance with its terms, subject
to (i) laws of general application relating to bankruptcy, insolvency and
the relief of debtors, and (ii) rules of law governing specific performance,
injunctive relief and other equitable remedies. To the best of the knowledge
of the Company, no Person has violated or breached, or committed any default
under, any Material Contract.
(c) (i) None of the Acquired Corporations has violated or breached, or
committed any default under, any Acquired Corporation Contract, and, to the
best of the knowledge of the Company, no other Person has violated or
breached, or committed any default under, any Acquired Corporation Contract
that will have a Material Adverse Effect on the Acquired Corporations; (ii)
to the best of the knowledge of the Company, no event has occurred, and no
circumstance or condition exists, that (with or without notice or lapse of
time) will, or could reasonably be expected to, (A) result in a violation or
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breach of any of the provisions of any Acquired Corporation Contract, (B)
give any Person the right to declare a default or exercise any remedy under
any Acquired Corporation Contract, (C) give any Person the right to a
rebate, chargeback, penalty or change in delivery schedule under any
Acquired Corporation Contract, (D) give any Person the right to accelerate
the maturity or performance of any Acquired Corporation Contract, or (E)
give any Person the right to cancel, terminate or modify any Acquired
Corporation Contract that will have a Material Adverse Effect on the
Acquired Corporations; (iii) none of the Acquired Corporations or any of
their Representatives has received any notice or other communication
regarding any actual or possible violation or breach of, or default under,
any Acquired Corporation Contract that will have a Material Adverse Effect
on the Acquired Corporation; and (iv) each of the Acquired Corporations has
obtained all necessary export licenses related to the export of its
products.
(d) Except as set forth in Part 2.10(d) of the Company Disclosure
Schedule, there is no Acquired Corporation Contract to which any
Governmental Body is a party or under which any Governmental Body has any
rights or obligations, or directly or indirectly benefiting any Governmental
Body (including any subcontract or other Contract between any Acquired
Corporation and any contractor or subcontractor to any Governmental Body).
(e) No Person is renegotiating, or has a right pursuant to the terms of
any Material Contract to renegotiate, any amount paid or payable to any
Acquired Corporation under any Material Contract or any other material term
or provision of any Material Contract, except for Acquired Corporation
Contracts, which are being renegotiated or provide for renegotiation
pursuant to their terms in the ordinary course of the Company's business.
2.11 YEAR 2000 LIABILITIES. None of the Acquired Corporations has any
accrued, contingent or other liabilities of any nature, either matured or
unmatured, including, without limitation, any liabilities relating to costs
associated with insuring that all software (and related Acquired Corporation
Proprietary Assets) that is sold, licensed or transferred by any Acquired
Corporation to any Person, computer systems, any software utilized by the
Acquired Corporations or other components of the Acquired Corporations'
information technology infrastructure are Year 2000 Compliant (whether or not
required to be reflected in financial statements in accordance with GAAP, and
whether due or to become due), except for: (a) liabilities identified as such in
the "liabilities" column of the Company Unaudited Interim Balance Sheet; and (b)
normal and recurring liabilities that have been incurred by the Acquired
Corporations since the date of the Company Unaudited Interim Balance Sheet in
the ordinary course of business and consistent with past practices.
2.12 COMPLIANCE WITH LEGAL REQUIREMENTS. Each of the Acquired Corporations
is, and has at all times since June 3, 1996 been, in compliance with all
applicable Legal Requirements, except where the failure to comply with such
Legal Requirements has not had and will not have a Material Adverse Effect on
the Acquired Corporations. Since June 3, 1996, none of the Acquired Corporations
has received any notice or other communication from any Governmental Body
regarding any actual or possible violation of, or failure to comply with, any
Legal Requirement.
2.13 CERTAIN BUSINESS PRACTICES. None of the Acquired Corporations nor any
director, officer, agent or employee of any of the Acquired Corporations has, on
behalf of any of the Acquired Corporations, (i) used any funds for unlawful
contributions, gifts, entertainment or other unlawful expenses relating to
political activity, (ii) made any unlawful payment to foreign or domestic
government officials or employees or to foreign or domestic political parties or
campaigns or violated any provision of the Foreign Corrupt Practices Act of
1977, as amended, or (iii) made any other unlawful payment.
2.14 GOVERNMENTAL AUTHORIZATIONS. The Acquired Corporations hold all
Governmental Authorizations necessary to enable the Acquired Corporations to
conduct their respective businesses in the manner in which such businesses are
currently being conducted. All such Governmental Authorizations are valid and in
full force and effect. Each Acquired Corporation is, and at all times since June
3, 1996 has been, in
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substantial compliance with the terms and requirements of such Governmental
Authorizations. Since June 3, 1996, none of the Acquired Corporations has
received any notice or other communication from any Governmental Body regarding
(a) any actual or possible violation of or failure to comply with any term or
requirement of any Governmental Authorization, or (b) any actual or possible
revocation, withdrawal, suspension, cancellation, termination or modification of
any Governmental Authorization.
2.15 TAX MATTERS.
(a) Except as set forth in Part 2.15(a) of the Company Disclosure
Schedule, all Tax Returns required to be filed by or on behalf of the
respective Acquired Corporations with any Governmental Body with respect to
any taxable period ending on or before the Closing Date (the "ACQUIRED
CORPORATION RETURNS") (i) have been or will be filed on or before the
applicable due date (including any extensions of such due date if properly
obtained), and (ii) have been, or will be when filed, prepared in all
material respects in compliance with all applicable Legal Requirements. All
amounts shown on the Acquired Corporation Returns to be due on or before the
Closing Date have been or will be paid on or before the Closing Date.
(b) The Company Financial Statements fully accrue all actual and
contingent liabilities for Taxes with respect to all periods through the
dates thereof in accordance with GAAP. Each Acquired Corporation will
establish, in the ordinary course of business and consistent with its past
practices, reserves adequate for the payment of all Taxes for the period
from the date of this Agreement through the Closing Date.
(c) Except as set forth in Part 2.15(c) of the Company Disclosure
Schedule, since the Acquired Corporation Return for the taxable period ended
December 31, 1994, no Acquired Corporation Return has ever been examined or
audited by any Governmental Body. No extension or waiver of the limitation
period applicable to any of the Acquired Corporation Returns has been
granted (by the Company or any other Person), and no such extension or
waiver has been requested from any Acquired Corporation.
(d) No claim or Legal Proceeding is pending or, to the best of the
knowledge of the Company, has been threatened against or with respect to any
Acquired Corporation in respect of any material Tax. There are no
unsatisfied liabilities for material Taxes (including liabilities for
interest, additions to tax and penalties thereon and related expenses) with
respect to any notice of deficiency or similar document received by any
Acquired Corporation with respect to any material Tax (other than
liabilities for Taxes asserted under any such notice of deficiency or
similar document which are being contested in good faith by the Acquired
Corporations and with respect to which adequate reserves for payment have
been established). There are no liens for material Taxes upon any of the
assets of any of the Acquired Corporations except liens for current Taxes
not yet due and payable. None of the Acquired Corporations has entered into
or become bound by any agreement or consent pursuant to Section 341(f) of
the Code. None of the Acquired Corporations has been, and none of the
Acquired Corporations will be, required to include any adjustment in taxable
income for any tax period (or portion thereof) pursuant to Section 481 of
the Code or any comparable provision under state or foreign Tax laws as a
result of transactions or events occurring, or accounting methods employed,
prior to the Closing.
(e) Except as set forth in Part 2.15(e) of the Company Disclosure
Schedule, there is no agreement, plan, arrangement or other Contract
covering any employee or independent contractor or former employee or
independent contractor of any of the Acquired Corporations that, considered
individually or considered collectively with any other such Contracts, will,
or could reasonably be expected to, give rise directly or indirectly to the
payment of any amount that would not be deductible pursuant to Section 280G
or Section 162 of the Code. None of the Acquired Corporations is, or has
ever been, a party to or bound by any tax indemnity agreement, tax sharing
agreement, tax allocation agreement or similar Contract.
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2.16 EMPLOYEE AND LABOR MATTERS; BENEFIT PLANS.
(a) Part 2.16(a) of the Company Disclosure Schedule identifies each
salary, bonus, deferred compensation, incentive compensation, stock
purchase, stock option, severance pay, termination pay, hospitalization,
medical, life or other insurance, supplemental unemployment benefits,
profit-sharing, pension or retirement plan, program or agreement
(collectively, the "PLANS") sponsored, maintained, contributed to or
required to be contributed to by any of the Acquired Corporations for the
benefit of any current or former employee of any of the Acquired
Corporations.
(b) Except as set forth in Part 2.16(a) of the Company Disclosure
Schedule, none of the Acquired Corporations maintains, sponsors or
contributes to, and none of the Acquired Corporations has at any time in the
past maintained, sponsored or contributed to, any employee pension benefit
plan (as defined in Section 3(2) of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), whether or not excluded from coverage
under specific Titles or Merger Subtitles of ERISA) for the benefit of
employees or former employees of any of the Acquired Corporations (a
"PENSION PLAN"). None of the Plans identified in Part 2.16(a) of the Company
Disclosure Schedule is subject to Title IV of ERISA or Section 412 of the
Code.
(c) Except as set forth in Part 2.16(a) or Part 2.16(c) of the Company
Disclosure Schedule, none of the Acquired Corporations maintains, sponsors
or contributes to any: (i) employee welfare benefit plan (as defined in
Section 3(1) of ERISA, whether or not excluded from coverage under specific
Titles or Merger Subtitles of ERISA) for the benefit of any employees or
former employees of any of the Acquired Corporations (a "WELFARE PLAN"), or
(ii) self-funded medical, dental or other similar Plan. None of the Plans
identified in Part 2.16(a) of the Company Disclosure Schedule is a
multi-employer plan (within the meaning of Section 3(37) of ERISA).
(d) With respect to each Plan, the Company has delivered to Parent: (i)
an accurate and complete copy of such Plan (including all amendments
thereto); (ii) an accurate and complete copy of the annual report, if
required under ERISA, with respect to such Plan for the last two years;
(iii) an accurate and complete copy of the most recent summary plan
description, together with each Summary of Material Modifications, if
required under ERISA, with respect to such Plan, (iv) if such Plan is funded
through a trust or any third party funding vehicle, an accurate and complete
copy of the trust or other funding agreement (including all amendments
thereto) and accurate and complete copies the most recent financial
statements thereof; (v) accurate and complete copies of all Contracts
relating to such Plan, including service provider agreements, insurance
contracts, minimum premium contracts, stop-loss agreements, investment
management agreements, subscription and participation agreements and
recordkeeping agreements; and (vi) an accurate and complete copy of the most
recent determination letter received from the Internal Revenue Service with
respect to such Plan (if such Plan is intended to be qualified under Section
401(a) of the Code).
(e) None of the Acquired Corporations is or has ever been required to be
treated as a single employer with any other Person under Section 4001(b)(1)
of ERISA or Section 414(b), (c), (m) or (o) of the Code. None of the
Acquired Corporations has ever been a member of an "affiliated service
group" within the meaning of Section 414(m) of the Code. None of the
Acquired Corporations has ever made a complete or partial withdrawal from a
multi-employer plan, as such term is defined in Section 3(37) of ERISA,
resulting in "withdrawal liability," as such term is defined in Section 4201
of ERISA (without regard to subsequent reduction or waiver of such liability
under either Section 4207 or 4208 of ERISA).
(f) None of the Acquired Corporations has any plan or commitment to
create any Welfare Plan or any additional Pension Plan, or to modify or
change any existing Pension Plan (other than to comply with applicable law)
in a manner that would affect any employee of any of the Acquired
Corporations.
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(g) Except as set forth in Part 2.16(g) of the Company Disclosure
Schedule, no Plan provides death, medical or health benefits (whether or not
insured) with respect to any current or former employee of any of the
Acquired Corporations after any such employee's termination of service
(other than (i) benefit coverage mandated by applicable law, including
coverage provided pursuant to Section 4980B of the Code, (ii) deferred
compensation benefits accrued as liabilities on the Company Balance Sheet,
and (iii) benefits the full cost of which are borne by current or former
employees of any of the Acquired Corporations (or the employees'
beneficiaries)).
(h) With respect to any Plan constituting a group health plan within the
meaning of Section 4980B(g)(2) of the Code, the provisions of Section 4980B
of the Code ("COBRA") have been complied with in all material respects. Part
2.16(h) of the Company Disclosure Schedule describes all obligations of the
Acquired Corporations as of the date of this Agreement under any of the
provisions of COBRA.
(i) Each of the Plans has been operated and administered in all material
respects in accordance with applicable Legal Requirements, including but not
limited to ERISA and the Code.
(j) Each of the Plans intended to be qualified under Section 401(a) of
the Code has received a favorable determination from the Internal Revenue
Service, and the Company is not aware of any reason why any such
determination letter should be revoked.
(k) Except as set forth in Part 2.16(k) of the Company Disclosure
Schedule, neither the execution, delivery or performance of this Agreement,
nor the consummation of the Merger or any of the other transactions
contemplated by this Agreement, will result in any payment (including any
bonus, golden parachute or severance payment) to any current or former
employee or director of any of the Acquired Corporations (whether or not
under any Plan), or materially increase the benefits payable under any Plan,
or result in any acceleration of the time of payment or vesting of any such
benefits.
(l) Part 2.16(l) of the Company Disclosure Schedule contains a list of
all salaried employees of each of the Acquired Corporations as of the date
of this Agreement, and correctly reflects, in all material respects, their
base salaries, their targeted annual bonus amounts, their dates of
employment and their positions. None of the Acquired Corporations is a party
to any collective bargaining contract or other Contract with a labor union
involving any of its employees. All of the employees of the Acquired
Corporations are "at will" employees.
(m) Part 2.16(m) of the Company Disclosure Schedule identifies each
Employee who is not fully available to perform work because of disability or
other leave and sets forth the basis of such leave and the anticipated date
of return to full service.
(n) Each Plan complies in all material respects with all applicable
Legal Requirements. Each of the Acquired Corporations is in compliance in
all material respects with all Contracts relating to employment, employment
practices, wages, bonuses and terms and conditions of employment, including
employee compensation matters.
(o) Except as set forth in Part 2.16(o) of the Company Disclosure
Schedule, each of the Acquired Corporations has good labor relations, and
none of the Acquired Corporations has any knowledge of any facts indicating
that (i) the consummation of the Merger or any of the other transactions
contemplated by this Agreement will have a material adverse effect on the
labor relations of any of the Acquired Corporations, or (ii) any of the
employees of the Acquired Corporations intends to terminate his or her
employment with the Acquired Corporation with which such employee is
employed.
2.17 ENVIRONMENTAL MATTERS. Each of the Acquired Corporations is in
compliance in all material respects with all applicable Environmental Laws,
which compliance includes the possession by each of the
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Acquired Corporations of all permits and other Governmental Authorizations
required under applicable Environmental Laws, and compliance with the terms and
conditions thereof. None of the Acquired Corporations has received any notice or
other communication (in writing or otherwise), whether from a Governmental Body,
citizens group, employee or otherwise, that alleges that any of the Acquired
Corporations is not in compliance with any Environmental Law, and, to the best
of the knowledge of the Company, there are no circumstances that may prevent or
interfere with the compliance by any of the Acquired Corporations with any
Environmental Law in the future. To the best of the knowledge of the Company, no
current or prior owner of any property leased or controlled by any of the
Acquired Corporations has received any notice or other communication (in writing
or otherwise), whether from a Government Body, citizens group, employee or
otherwise, that alleges that such current or prior owner or any of the Acquired
Corporations is not in compliance with any Environmental Law. To the best of the
knowledge of the Company, all property that is leased to, controlled by or used
by the Company, and all surface water, groundwater and soil associated with or
adjacent to such property is in clean and healthful condition and is free of any
material environmental contamination of any nature. (For purposes of this
Section 2.17 and Section 3.13: (i) "ENVIRONMENTAL LAW" means any federal, state,
local or foreign Legal Requirement relating to pollution or protection of human
health or the environment (including ambient air, surface water, ground water,
land surface or subsurface strata), including any law or regulation relating to
emissions, discharges, releases or threatened releases of Materials of
Environmental Concern, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
Materials of Environmental Concern; and (ii) "MATERIALS OF ENVIRONMENTAL
CONCERN" include chemicals, pollutants, contaminants, wastes, toxic substances,
petroleum and petroleum products and any other substance that is now or
hereafter regulated by any Environmental Law or that is otherwise a danger to
health, reproduction or the environment.)
2.18 INSURANCE. The Company has delivered to Parent a copy of each
insurance policy and each self insurance program relating to the business,
assets or operations of any of the Acquired Corporations. Each such insurance
policy is in full force and effect. Since June 3, 1996, none of the Acquired
Corporations has received any notice or other communication regarding any actual
or possible (a) cancellation or invalidation of any insurance policy, (b)
refusal of any coverage or rejection of any material claim under any insurance
policy, or (c) material adjustment in the amount of the premiums payable with
respect to any insurance policy. Except as set forth in Part 2.18 of the Company
Disclosure Schedule, there is no pending claim (including any workers'
compensation claim) under or based upon any insurance policy of any of the
Acquired Corporations; and, to the best of the knowledge of the Company, no
event has occurred, and no condition or circumstance exists, that might (with or
without notice or lapse of time) directly or indirectly give rise to or serve as
a basis for any such claim.
2.19 TRANSACTIONS WITH AFFILIATES. Except as set forth in the Company SEC
Documents, since the date of the Company's last proxy statement filed with the
SEC, no event has occurred that would be required to be reported by the Company
pursuant to Item 404 of Regulation S-K promulgated by the SEC. Part 2.19 of the
Company Disclosure Schedule identifies each person who is an "affiliate" (as
that term is used in Rule 145 promulgated under the Securities Act) of the
Company as of the date of this Agreement.
2.20 LEGAL PROCEEDINGS; ORDERS.
(a) Except as set forth in Part 2.20(a) of the Company Disclosure
Schedule, there is no pending Legal Proceeding (including, to the best
knowledge of the Company, any investigation), and no Person has overtly
threatened to commence any Legal Proceeding: (i) that involves any of the
Acquired Corporations or any of the assets owned or used by any of the
Acquired Corporations, including, without limitation, any Acquired Company
Proprietary Asset; or (ii) that challenges, or that may have the effect of
preventing, delaying, making illegal or otherwise interfering with, the
Merger or any of the other transactions contemplated by this Agreement. To
the best of the knowledge of the Company, no event has occurred, and no
claim, dispute or other condition or circumstance exists, that will, or
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that could reasonably be expected to, give rise to or serve as a basis for
the commencement of any such Legal Proceeding. To the best of the knowledge
of the Company, no event has occurred, and no claim, dispute or other
condition or circumstance exists, that will, or that could reasonably be
expected to, cause or provide a basis for a director, officer or other
Representative of any of the Acquired Corporations to seek indemnification
from, or commence a Legal Proceeding against or involving, any of the
Acquired Corporations.
(b) There is no order, writ, injunction, judgment or decree to which any
of the Acquired Corporations, or any of the assets owned or used by any of
the Acquired Corporations, is subject. To the best of the knowledge of the
Company, no officer or other employee of any of the Acquired Corporations is
subject to any order, writ, injunction, judgment or decree that prohibits
such officer or other employee from engaging in or continuing any conduct,
activity or practice relating to the business of any of the Acquired
Corporations.
2.21 AUTHORITY; INAPPLICABILITY OF ANTI-TAKEOVER STATUTES; BINDING NATURE
OF AGREEMENT. The Company has the absolute and unrestricted right, corporate
power and authority to enter into and to perform its obligations under this
Agreement. The Board of Directors of the Company (at a meeting duly called and
held) has (a) unanimously determined that the Merger is advisable and fair and
in the best interests of the Company and its shareholders, (b) unanimously
approved the execution, delivery and performance of this Agreement by the
Company and has unanimously approved the Merger, (c) unanimously recommended the
adoption and approval of this Agreement and the Merger by the holders of Company
Common Stock and directed that this Agreement and the Merger be submitted for
consideration by the Company's shareholders at the Company Shareholders' Meeting
(as defined in Section 5.2), and (d) approved, and the stockholders of the
Company have adopted, an amendment to the Company's Articles of Incorporation
having the effect of causing the Company not to be subject to any state takeover
law or similar Legal Requirement that might otherwise apply to the Merger or any
of the other transactions contemplated by this Agreement except as set forth in
Part 2.21 of the Company Disclosure Schedule. This Agreement constitutes the
legal, valid and binding obligation of the Company, enforceable against the
Company in accordance with its terms, subject to (i) laws of general application
relating to bankruptcy, insolvency and the relief of debtors, and (ii) rules of
law governing specific performance, injunctive relief and other equitable
remedies.
2.22 NO EXISTING DISCUSSIONS. None of the Acquired Corporations, and no
Representative of any of the Acquired Corporations, is engaged, directly or
indirectly, in any discussions or negotiations with any other Person relating to
any Acquisition Proposal.
2.23 ACCOUNTING MATTERS. To the best of the knowledge of the Company,
neither the Company nor any of its affiliates has taken or agreed to, or plans
to, take any action that would prevent Parent from accounting for the Merger as
a "pooling of interests."
2.24 VOTE REQUIRED. The affirmative vote of the holders of a majority of
the shares of Company Common Stock outstanding on the record date for the
Company Shareholder Meeting (the "REQUIRED COMPANY SHAREHOLDER VOTE") is the
only vote of the holders of any class or series of the Company's capital stock
necessary to adopt and approve this Agreement, the Merger and the other
transactions contemplated by this Agreement.
2.25 NON-CONTRAVENTION; CONSENTS. Neither (i) the execution, delivery or
performance of this Agreement or any of the other agreements referred to in this
Agreement, nor (ii) the consummation of the
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Merger or any of the other transactions contemplated by this Agreement, will
directly or indirectly (with or without notice or lapse of time):
(a) contravene, conflict with or result in a violation of (i) any of the
provisions of the articles of incorporation, bylaws or other charter or
organizational documents of any of the Acquired Corporations, or (ii) any
resolution adopted by the shareholders, the board of directors or any
committee of the board of directors of any of the Acquired Corporations;
(b) contravene, conflict with or result in a violation of, or give any
Governmental Body or other Person the right to challenge the Merger or any
of the other transactions contemplated by this Agreement or to exercise any
remedy or obtain any relief under, any Legal Requirement or any order, writ,
injunction, judgment or decree to which any of the Acquired Corporations, or
any of the assets owned or used by any of the Acquired Corporations, is
subject;
(c) contravene, conflict with or result in a violation of any of the
terms or requirements of, or give any Governmental Body the right to revoke,
withdraw, suspend, cancel, terminate or modify, any Governmental
Authorization that is held by any of the Acquired Corporations or that
otherwise relates to the business of any of the Acquired Corporations or to
any of the assets owned or used by any of the Acquired Corporations;
(d) except as set forth in Part 2.25(d) of the Company Disclosure
Schedule, contravene, conflict with or result in a violation or breach of,
or result in a default under, any provision of any Acquired Corporation
Contract that is or would constitute a Material Contract, or give any Person
the right to (i) declare a default or exercise any remedy under any such
Acquired Corporation Contract, (ii) a rebate, chargeback, penalty or change
in delivery schedule under any such Acquired Corporation Contract, (iii)
accelerate the maturity or performance of any such Acquired Corporation
Contract, or (iv) cancel, terminate or modify any term of such Acquired
Corporation Contract; or
(e) result in the imposition or creation of any Encumbrance upon or with
respect to any asset owned or used by any of the Acquired Corporations
(except for minor liens that will not, in any case or in the aggregate,
materially detract from the value of the assets subject thereto or
materially impair the operations of any of the Acquired Corporations).
Except as may be required by the Exchange Act, the PBCL, the DGCL and the rules
of the National Association of Securities Dealers, Inc. ("NASD") (as they relate
to the S-4 Registration Statement and the Joint Proxy Statement/Prospectus, as
defined in Section 2.28(b)), none of the Acquired Corporations was, is or will
be required to make any filing with or give any notice to, or to obtain any
Consent from, any Person in connection with (x) the execution, delivery or
performance of this Agreement or any of the other agreements referred to in this
Agreement, or (y) the consummation of the Merger or any of the other
transactions contemplated by this Agreement.
2.26 FAIRNESS OPINION. The Company's Board of Directors has received the
written opinion of Robert W. Baird & Co. Incorporated, financial advisor to the
Company, dated the date of this Agreement, to the effect that the Exchange Ratio
is fair to the shareholders of the Company from a financial point of view. The
Company has furnished an accurate and complete copy of said written opinion to
Parent.
2.27 FINANCIAL ADVISOR. Except for Robert W. Baird & Co. Incorporated, no
broker, finder or investment banker is entitled to any brokerage, finder's or
other fee or commission in connection with the Merger or any of the other
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of any of the Acquired Corporations. The Company has communicated to
Parent the fee formula pursuant to which fees, commissions and other amounts
will be paid by the Company to Robert W. Baird & Co. Incorporated if the Merger
is consummated. The Company has furnished to Parent accurate and complete copies
of all agreements under which any such fees, commissions or other amounts have
been paid or may become payable and all indemnification and other agreements
relating to the engagement of Robert W. Baird & Co. Incorporated.
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2.28 FULL DISCLOSURE.
(a) This Agreement (including the Company Disclosure Schedule) does not,
and the certificate referred to in Section 6.6(e) will not, (i) contain any
representation, warranty or information that is false or misleading with
respect to any material fact, or (ii) omit to state any material fact
necessary in order to make the representations, warranties and information
contained and to be contained herein and therein (in the light of the
circumstances under which such representations, warranties and information
were or will be made or provided) not false or misleading.
(b) None of the information supplied or to be supplied by or on behalf
of the Company for inclusion or incorporation by reference in the
registration statement on Form S-4 to be filed with the SEC by Parent in
connection with the issuance of Parent Common Stock in the Merger (the "S-4
REGISTRATION STATEMENT") will, at the time the S-4 Registration Statement is
filed with the SEC or at the time it becomes effective under the Securities
Act, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make
the statements therein, in the light of the circumstances under which they
are made, not misleading. None of the information supplied or to be supplied
by or on behalf of the Company for inclusion or incorporation by reference
in the Joint Proxy Statement/Prospectus to be filed with the SEC as part of
the S-4 Registration Statement (the "JOINT PROXY STATEMENT/PROSPECTUS"),
will, at the time the Joint Proxy Statement/Prospectus is mailed to the
shareholders of the Company, at the time of the Company Shareholders'
Meeting or as of the Effective Time, contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in the light
of the circumstances under which they are made, not misleading. The Joint
Proxy Statement/Prospectus will comply as to form in all material respects
with the provisions of the Exchange Act and the rules and regulations
promulgated by the SEC thereunder.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB.
Parent and Merger Sub, jointly and severally, represent and warrant to the
Company that, except as set forth in the disclosure schedule delivered to the
Company on the date of this Agreement and signed by an executive officer of
Parent (the "PARENT DISCLOSURE SCHEDULE"):
3.1 ORGANIZATION, STANDING AND POWER. Each of Parent and Merger Sub is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware. Each of Parent and Merger Sub has all corporate power
and authority to own its properties and to carry on its business as now being
conducted and is duly qualified to do business and is in good standing in each
jurisdiction in which the failure to be so qualified would have a Material
Adverse Effect on Parent and Merger Sub.
3.2 CAPITALIZATION, ETC. The authorized capital stock of Parent consists
of: (i) fifty million (50,000,000) shares of Parent Common Stock, $.001 par
value per share, of which, as of August 31, 1998, 15,925,602 shares (which
amount does not materially differ from the amount issued and outstanding as of
the date of this Agreement) were issued and outstanding; and (ii) ten million
(10,000,000) shares of preferred stock, $.001 par value per share, of which no
shares are outstanding as of the date of this Agreement. As of the date of this
Agreement, there are no outstanding subscriptions, options, calls, warrants or
rights to acquire shares of Parent Common Stock other than pursuant to stock
issuance or stock option plans or other arrangements disclosed in the Parent SEC
Documents. The authorized capital stock of Merger Sub consists of one hundred
(100) shares of Common Stock ("MERGER SUB COMMON STOCK"), $.001 par value per
share, all of which have been issued and are outstanding as of the date of this
Agreement and are held by Parent. As of the date of this Agreement, there are no
shares of Parent Common Stock held in treasury by Parent. None of the
outstanding shares of Parent Common Stock is entitled or subject to any
preemptive right, right of participation, right of maintenance or any similar
right.
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3.3 SEC FILINGS; FINANCIAL STATEMENTS.
(a) Parent has delivered to the Company accurate and complete copies
(excluding copies of exhibits) of each report, registration statement (on a
form other than Form S-8) and definitive proxy statement filed by Parent
with the SEC between November 26, 1997 and the date of this Agreement and
will deliver to the Company accurate and complete copies of all such
registration statements, proxy statements and other statements, reports,
schedules, forms and other documents filed after the date of this Agreement
and prior to the Effective Date (the "PARENT SEC DOCUMENTS"), which are all
of the forms, reports and documents required to be filed by Parent with the
SEC since November 26, 1997. As of the time it was filed with the SEC (or,
if amended or superseded by a later filing, then on the date of such
filing): (i) each of the Parent SEC Documents filed with the SEC was timely
filed and complied in all material respects with the applicable requirements
of the Securities Act or the Exchange Act (as the case may be) as of the
date of such filing and any Parent SEC Documents filed after the date hereof
and prior to the Effective Time will so comply; and (ii) none of the Parent
SEC Documents contained any untrue statement of a material fact or omitted
to state a material fact required to be stated therein or necessary in order
to make the statements therein, in the light of the circumstances under
which they were made, not misleading.
(b) The consolidated financial statements contained in the Parent SEC
Documents: (i) complied as to form in all material respects with the
published rules and regulations of the SEC applicable thereto; (ii) were
prepared in accordance with GAAP applied on a consistent basis throughout
the periods covered (except as may be indicated in the notes to such
financial statements and, in the case of unaudited statements, as permitted
by Form 10-Q of the SEC, and except that unaudited financial statements may
not contain footnotes and other information required to complete financial
statements); and (iii) fairly present the consolidated financial position of
Parent and its subsidiaries as of the respective dates thereof and the
consolidated results of operations of Parent and its subsidiaries for the
periods covered thereby. All adjustments (consisting of recurring accruals)
considered necessary for a fair presentation of the financial statements
have been included. The audited consolidated balance sheet of Parent and its
subsidiaries for the year ended December 31, 1997 included in the Company's
final Prospectus dated February 13, 1998 is sometimes referred to herein as
the "PARENT BALANCE SHEET" and the unaudited consolidated balance sheet of
Parent and its subsidiaries as of June 30, 1998 included in Parent's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1998 is
sometimes referred to herein as the "PARENT UNAUDITED INTERIM BALANCE
SHEET." All financial statements (including any related notes) contained in
Company SEC Documents filed after the date hereof shall meet the conditions
set forth in (i), (ii) and (iii) of this Section 3.3(b).
3.4 DISCLOSURE.
(a) This Agreement (including the Parent Disclosure Schedule) does not,
and the certificate referred to in Section 7.5(e) will not, (i) contain any
representation, warranty or information that is false or misleading with
respect to any material fact, or (ii) omit to state any material fact
necessary in order to make the representations, warranties and information
contained and to be contained herein and therein (in the light of the
circumstances under which such representations, warranties and information
were or will be made or provided) not false or misleading.
(b) None of the information to be supplied by or on behalf of Parent for
inclusion in the S-4 Registration Statement will, at the time the S-4
Registration Statement becomes effective under the Securities Act, contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they are made, not
misleading. None of the information to be supplied by or on behalf of Parent
for inclusion in the Joint Proxy Statement/Prospectus will, at the time the
Joint Proxy Statement/Prospectus is mailed to the shareholders of Parent, at
the time of the Parent Shareholders' Meeting or as of the Effective Time,
contain any untrue statement of a material fact or
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omit to state any material fact required to be stated therein or necessary
in order to make the statements therein, in the light of the circumstances
under which they are made, not misleading. The S-4 Registration Statement
will comply as to form in all material respects with the provisions of the
Securities Act and the rules and regulations promulgated by the SEC
thereunder, except that no representation or warranty is made by Parent with
respect to statements made or incorporated by reference therein based on
information supplied by the Company for inclusion or incorporation by
reference in the Joint Proxy Statement/Prospectus. The Joint Proxy
Statement/Prospectus will comply as to form in all material respects with
the provisions of the Exchange Act and the rules and regulations promulgated
by the SEC thereunder.
3.5 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth in Part 3.5
of the Parent Disclosure Schedule between the date of the Parent Unaudited
Interim Balance Sheet and the date of this Agreement: (i) there has not been any
event that has had a Material Adverse Effect on Parent; (ii) Parent has not
declared, accrued, set aside or paid any dividend; and (iii) Parent has not
incurred any liabilities other than in the ordinary course of business and
consistent with past practices.
3.6 AUTHORITY; BINDING NATURE OF AGREEMENT. Parent and Merger Sub have the
absolute and unrestricted right, power and authority to perform their
obligations under this Agreement; and the execution, delivery and performance by
Parent and Merger Sub of this Agreement have been duly authorized by all
necessary action on the part of Parent and Merger Sub and their respective
boards of directors. This Agreement constitutes the legal, valid and binding
obligation of Parent and Merger Sub, enforceable against them in accordance with
its terms, subject to (i) laws of general application relating to bankruptcy,
insolvency and the relief of debtors, and (ii) rules of law governing specific
performance, injunctive relief and other equitable remedies.
3.7 NON-CONTRAVENTION; CONSENTS. Neither the execution and delivery of
this Agreement by Parent and Merger Sub nor the consummation by Parent and
Merger Sub of the Merger will (a) conflict with or result in any breach of any
provision of the certificate of incorporation or bylaws of Parent or the
articles of incorporation or bylaws of Merger Sub, or (b) result in a default by
Parent or Merger Sub under any Contract to which Parent or Merger Sub is a
party, except for any default which has not had and will not have a Material
Adverse Effect on Parent, or (c) result in a violation by Parent or Merger Sub
of any law, statute, rule, regulation, order, writ, injunction, judgment or
decree to which Parent or Merger Sub is subject, except for any violation which
has not had and will not have a Material Adverse Effect on Parent. Except as may
be required by the Securities Act, the Exchange Act, state securities or "blue
sky" laws, the PBCL, the DGCL and the rules of the NASD (as they relate to the
S-4 Registration Statement and the Joint Proxy Statement/Prospectus), Parent is
not and will not be required to make any filing with or give any notice to, or
to obtain any Consent from, any Person in connection with the execution and
delivery of this Agreement, or the consummation of the Merger.
3.8 VOTE REQUIRED. The only vote of Parent's stockholders required to
approve the issuance of Parent Common Stock in the Merger is the vote of a
majority of votes cast in person or by proxy as prescribed by rules of the NASD
(the "REQUIRED PARENT STOCKHOLDER VOTE").
3.9 VALID ISSUANCE. The Parent Common Stock to be issued in the Merger
will, when issued in accordance with the provisions of this Agreement, be duly
authorized, validly issued, fully paid and nonassessable.
3.10 ACCOUNTING MATTERS. To the best of the knowledge of Parent, Parent
has not taken and has not agreed, and does not plan, to take any action that
would prevent Parent from accounting for the Merger as a "pooling of interests."
3.11 FAIRNESS OPINION. Parent's Board of Directors has received the
written opinion of Hambrecht & Quist LLC, financial advisor to Parent, dated as
of the date of this Agreement, to the effect that
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the Exchange Ratio is fair to Parent from a financial point of view. Parent has
furnished an accurate and complete copy of said written opinion to the Company.
3.12 TAX MATTERS.
(a) All Tax Returns required to be filed by or on behalf of the Parent
and its Subsidiaries with any Governmental Body with respect to any taxable
period ending on or before the Closing Date (the "PARENT RETURNS") (i) have
been or will be filed on or before the applicable due date (including any
extensions of such due date if properly obtained), and (ii) have been, or
will be when filed, prepared in all material respects in compliance with all
applicable Legal Requirements. All amounts shown on the Parent Returns to be
due on or before the Closing Date have been or will be paid on or before the
Closing Date.
(b) The Parent financial statements in the Parent SEC Documents fully
accrue all actual and contingent liabilities for Taxes with respect to all
periods through the dates thereof in accordance with GAAP. Parent will
establish, in the ordinary course of business and consistent with its past
practices, reserves adequate for the payment of all Taxes for the period
from the date of this Agreement through the Closing Date.
(c) Since the Parent Return for the taxable period ended December 31,
1992, no Parent Return has ever been examined or audited by any Governmental
Body. No extension or waiver of the limitation period applicable to any of
the Parent Returns has been granted (by Parent or any other Person), and no
such extension or waiver has been requested from Parent or any of its
Subsidiaries.
(d) No claim or Legal Proceeding is pending or, to the best of the
knowledge of the Parent, has been threatened against or with respect to
Parent or any of its Subsidiaries in respect of any material Tax. There are
no unsatisfied liabilities for material Taxes (including liabilities for
interest, additions to tax and penalties thereon and related expenses) with
respect to any notice of deficiency or similar document received by Parent
or any of its Subsidiaries with respect to any material Tax (other than
liabilities for Taxes asserted under any such notice of deficiency or
similar document which are being contested in good faith by Parent or any of
its Subsidiaries and with respect to which adequate reserves for payment
have been established). There are no liens for material Taxes upon any of
the assets of any of Parent or any of its Subsidiaries except liens for
current Taxes not yet due and payable. Neither Parent nor any of its
Subsidiaries has entered into or become bound by any agreement or consent
pursuant to Section 341(f) of the Code. Neither Parent nor any of its
Subsidiaries has been, and neither Parent nor any of its Subsidiaries will
be, required to include any adjustment in taxable income for any tax period
(or portion thereof) pursuant to Section 481 or 263A of the Code or any
comparable provision under state or foreign Tax laws as a result of
transactions or events occurring, or accounting methods employed, prior to
the Closing.
(e) There is no agreement, plan, arrangement or other Contract covering
any employee or independent contractor or former employee or independent
contractor of Parent or any of its Subsidiaries that, considered
individually or considered collectively with any other such Contracts, will,
or could reasonably be expected to, give rise directly or indirectly to the
payment of any amount that would not be deductible pursuant to Section 280G
or Section 162 of the Code. Neither Parent nor any of its Subsidiaries is,
or has ever been, a party to or bound by any tax indemnity agreement, tax
sharing agreement, tax allocation agreement or similar Contract.
3.13 ENVIRONMENTAL MATTERS. Except as set forth in Part 3.13 of the Parent
Disclosure Schedule, each of Parent and its Subsidiaries is in compliance in all
material respects with all applicable Environmental Laws, which compliance
includes the possession by each of Parent and its Subsidiaries of all permits
and other Governmental Authorizations required under applicable Environmental
Laws, and compliance with the terms and conditions thereof. Neither Parent nor
any of its Subsidiaries has received any notice or other communication (in
writing or otherwise), whether from a Governmental Body, citizens group,
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employee or otherwise, that alleges that any of Parent or its Subsidiaries is
not in compliance with any Environmental Law, and, to the knowledge of Parent,
there are no circumstances that may prevent or interfere with the compliance by
Parent or any of its Subsidiaries with any Environmental Law in the future. To
the knowledge of the Parent, no current or prior owner of any property leased or
controlled by Parent or any of its Subsidiaries has received any notice or other
communication (in writing or otherwise), whether from a Government Body,
citizens group, employee or otherwise, that alleges that such current or prior
owner or Parent or any of its Subsidiaries is not in compliance with any
Environmental Law. To the knowledge of Parent, all property that is leased to,
controlled by or used by Parent, and all surface water, groundwater and soil
associated with or adjacent to such property is in clean and healthful condition
and is free of any material environmental contamination of any nature.
3.14 SIGNIFICANT CUSTOMERS. Part 3.14 of the Parent Disclosure Schedule
sets forth a complete and accurate list of all Parent's Significant Customers.
For purposes of this Agreement, "PARENT'S SIGNIFICANT CUSTOMERS" are the twenty
(20) customers of the Parent that have effected the most purchases, in dollar
terms, and accounted for the most revenues, in dollar terms, during the fiscal
year ended December 31, 1997. None of the Parent's Significant Customers has
canceled, returned or substantially reduced or, to the knowledge of the Parent,
is currently attempting or threatening to cancel, return or substantially
reduce, any purchases from, orders to or services provided by the Parent. Parent
has not received any material customer complaints concerning its products and/or
services.
3.15 YEAR 2000 LIABILITIES. Neither Parent nor any of its Subsidiaries has
any accrued, contingent or other liabilities of any nature, either matured or
unmatured, including, without limitation, any liabilities relating to costs
associated with insuring that all software (and related Parent Proprietary
Assets) that is sold, licensed or transferred by Parent or any of its
Subsidiaries to any Person, computer systems, any software utilized by the
Parent or other components of the Parent's information technology infrastructure
are Year 2000 Compliant (whether or not required to be reflected in financial
statements in accordance with GAAP, and whether due or to become due), except
for: (a) liabilities identified as such in the "liabilities" column of the
Parent Unaudited Interim Balance Sheet as of June 30, 1998 included in the
Parent's Quarterly Report on Form 10-Q for the quarter ended June 30, 1998; and
(b) normal and recurring liabilities that have been incurred by Parent since the
date of the Parent Unaudited Interim Balance Sheet in the ordinary course of
business and consistent with past practices.
SECTION 4. CERTAIN COVENANTS OF THE COMPANY.
4.1 ACCESS AND INVESTIGATION. During the period from the date of this
Agreement through the Effective Time (the "PRE-CLOSING PERIOD"), the Company
shall, and shall cause the respective Representatives of the Acquired
Corporations to: (a) provide Parent and Parent's Representatives with reasonable
access to the Acquired Corporations' Representatives, personnel and assets and
to all existing books, records, Tax Returns, work papers and other documents and
information relating to the Acquired Corporations; and (b) provide Parent and
Parent's Representatives with such copies of the existing books, records, Tax
Returns, work papers and other documents and information relating to the
Acquired Corporations, and with such additional financial, operating and other
data and information regarding the Acquired Corporations, as Parent may
reasonably request. Without limiting the generality of the foregoing, during the
Pre-Closing Period, the Company shall promptly provide Parent with copies of:
(a) any written materials or communications sent by or on behalf of the
Company to its shareholders;
(b) any material notice, document or other communication sent by or on
behalf of any of the Acquired Corporations to any party to any Material
Contract or sent to any of the Acquired Corporations by any party to any
Material Contract (other than any communication that relates solely to
commercial transactions between the Company and the other party to any such
Material Contract and that is of the type sent in the ordinary course of
business and consistent with past practices);
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(c) any notice, report or other document filed with or sent to any
Governmental Body in connection with the Merger or any of the other
transactions contemplated by this Agreement; and
(d) any material notice, report or other document received by any of the
Acquired Corporations from any Governmental Body.
4.2 OPERATION OF THE COMPANY'S BUSINESS.
(a) During the Pre-Closing Period: (i) the Company shall ensure that
each of the Acquired Corporations conducts its business and operations (A)
in the ordinary course and in accordance with past practices and (B) in
compliance with all applicable Legal Requirements and the requirements of
all Acquired Company Contracts that constitute Material Contracts; (ii) the
Company shall use all reasonable efforts to ensure that each of the Acquired
Corporations preserves intact its current business organization, keeps
available the services of its current officers and employees and maintains
its relations and goodwill with all suppliers, customers, landlords,
creditors, licensors, licensees, employees and other Persons having business
relationships with the respective Acquired Corporations; (iii) the Company
shall keep in full force all insurance policies referred to in Section 2.18;
(iv) the Company shall provide all notices, assurances and support required
by any Acquired Corporation Contract relating to any Proprietary Asset in
order to ensure that no condition under such Acquired Corporation Contract
occurs which could result in, or could increase the likelihood of, (A) any
transfer or disclosure by any Acquired Corporation of any source code
materials or other Proprietary Asset, or (B) a release from any escrow of
any source code materials or other Proprietary Asset which have been
deposited or are required to be deposited in escrow under the terms of such
Acquired Corporation Contract; and (v) the Company shall (to the extent
requested by Parent) cause its officers to report regularly to Parent
concerning the status of the Company's business.
(b) During the Pre-Closing Period, the Company shall not (without the
prior written consent of Parent), and shall not permit any of the other
Acquired Corporations to:
(i) declare, accrue, set aside or pay any dividend or make any other
distribution in respect of any shares of capital stock, or repurchase,
redeem or otherwise reacquire any shares of capital stock or other
securities;
(ii) sell, issue, grant or authorize the issuance or grant of (i)
any capital stock or other security, (ii) any option, call, warrant or
right to acquire any capital stock or other security, or (iii) any
instrument convertible into or exchangeable for any capital stock or
other security (except that the Company may (A) issue Company Common
Stock upon the valid exercise of Company Options or Company Warrants
outstanding as of the date of this Agreement and (B) in the ordinary
course of business and consistent with past practices, grant options
exercisable into not more than two hundred fifty (250) shares of Company
Common Stock per newly-hired employee);
(iii) amend or waive any of its rights under, or accelerate the
vesting under, any provision of any of the Company's stock option plans,
any provision of any agreement evidencing any outstanding stock option or
any restricted stock purchase agreement, or otherwise modify any of the
terms of any outstanding option, warrant or other security or any related
Contract;
(iv) amend or permit the adoption of any amendment to its articles
of incorporation or bylaws or other charter or organizational documents,
or effect or become a party to any merger, consolidation, share exchange,
business combination, recapitalization, reclassification of shares, stock
split, reverse stock split or similar transaction;
(v) form any subsidiary or acquire any equity interest or other
interest in any other Entity;
(vi) make any capital expenditure (except that the Acquired
Corporations may make capital expenditures that, when added to all other
capital expenditures made on behalf of the Acquired
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Corporations during the Pre-Closing Period, do not exceed $50,000 with
respect to any single capital expenditure or $100,000 in the aggregate);
(vii) enter into or become bound by, or permit any of the assets
owned or used by it to become bound by, any Material Contract (other than
Contracts identified pursuant to Section 2.10(a)(viii) hereunder), or
amend or prematurely terminate, or waive or exercise any material right
or remedy (including any right to repurchase shares of Company Common
Stock) under, any Material Contract (other than Contracts identified
pursuant to Section 2.10(a)(viii) hereunder);
(viii) acquire, lease or license any right or other asset from any
other Person or sell or otherwise dispose of, or lease or license, any
right or other asset to any other Person (except in each case for
immaterial assets acquired, leased, licensed or disposed of by the
Company in the ordinary course of business and consistent with past
practices), or waive or relinquish any material right;
(ix) incur any indebtedness for borrowed money (other than (i) in
connection with the financing of ordinary trade payables; (ii) pursuant
to existing credit facilities; (iii) in connection with leasing
activities in the ordinary course of business; or (iv) for tax planning
purposes in the ordinary course of business) or guarantee any
indebtedness of any person for borrowed money, or issue or sell any debt
securities or warrants or right to acquire debt securities of any of the
Acquired Corporations or guarantee any debt securities of others.
(x) except in the ordinary course of business and consistent with
past practices, establish, adopt or amend any employee benefit plan, pay
any bonus except in accordance with the terms of existing Plans or
pursuant to commitments made prior to the date of this Agreement, or make
any profit-sharing or similar payment to, or increase the amount of the
wages, salary, commissions, fringe benefits or other compensation or
remuneration payable to, any of its directors, officers or employees;
(xi) grant any severance or termination pay to any officer or
employee except payments in amounts consistent with policies and past
practices or pursuant to written agreements outstanding, or policies
existing, on the date hereof and as previously disclosed in writing or
made available to Parent, or adopt any new severance plan;
(xii) hire any new employee having an annual salary in excess of
$100,000 or as an officer of the Company or engage any consultant or
independent contractor for a period exceeding sixty (60) days;
(xiii) change the status, title or responsibilities, including without
limitation, termination or promotion, of any officer of the Company or
promote any employee to an officer position in the Company;
(xiv) transfer or license to any Person or otherwise extend the term
of any agreement with respect to, amend or modify in any material respect
any rights (including without limitation distribution rights) to the
Proprietary Assets of the Acquired Corporations, or enter into
assignments of future patent rights, other than non-exclusive licenses
and distribution rights in the ordinary course of business and consistent
with past practice;
(xv) sell, lease, license, encumber or otherwise dispose of any
properties or assets which are material, individually or in the
aggregate, to the business of the Company, except in the ordinary course
of business consistent with past practice or lend funds to any third
party (other than intracompany loans and travel advances in the ordinary
course of business);
(xvi) change any of its methods of accounting or accounting practices
in any respect;
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(xvii) make any election with respect to Taxes;
(xviii) commence or settle any Legal Proceeding;
(xix) enter into any material transaction or take any other material
action outside the ordinary course of business or inconsistent with past
practices;
(xx) enter into any agreement requiring the consent or approval of
any third party with respect to the Merger; or
(xxi) agree or commit to take any of the actions described in clauses
"(i)" through "(xx)" of this Section 4.2(b).
(c) During the Pre-Closing Period, the Company shall promptly notify
Parent in writing of: (i) the discovery by the Company of any event,
condition, fact or circumstance that occurred or existed on or prior to the
date of this Agreement and that caused or constitutes a material inaccuracy
in any representation or warranty made by the Company in this Agreement;
(ii) any event, condition, fact or circumstance that occurs, arises or
exists after the date of this Agreement and that would cause or constitute a
material inaccuracy in any representation or warranty made by the Company in
this Agreement if (A) such representation or warranty had been made as of
the time of the occurrence, existence or discovery of such event, condition,
fact or circumstance, or (B) such event, condition, fact or circumstance had
occurred, arisen or existed on or prior to the date of this Agreement; (iii)
any event, condition, fact or circumstance hereafter arising which, if
existing or occurring at the date of this Agreement, would have been
required to be set forth or described in the Company Disclosure Schedule;
(iv) any material breach of any covenant or obligation of the Company; and
(v) any event, condition, fact or circumstance that would make the timely
satisfaction of any of the conditions set forth in Section 6 or Section 7
impossible or unlikely or that has had or could reasonably be expected to
have a Material Adverse Effect on the Acquired Corporations. No notification
given to Parent pursuant to this Section 4.2(c) shall limit or otherwise
affect any representations, warranties, covenants or obligations of the
Company contained in this Agreement.
(d) If any event, condition, fact or circumstance that is required to be
disclosed pursuant to Section 4.2(c) requires any change in the Company
Disclosure Schedule, or if any such event, condition, fact or circumstance
would require such a change assuming Company Disclosure Schedule were dated
as of the date of the occurrence, existence or discovery of such event,
condition, fact or circumstance, then the Company shall promptly deliver to
Parent an update to the Company Disclosure Schedule specifying such change.
No such update shall be deemed to supplement or amend the Company Disclosure
Schedule for the purpose of (i) determining the accuracy of any of the
representations and warranties made by the Company in this Agreement, or
(ii) determining whether any of the conditions set forth in Section 6 has
been satisfied.
4.3 NO SOLICITATION.
(a) From the date of this Agreement until the earlier of the Effective
Time or termination of this Agreement pursuant to Section 8, the Company
shall not directly or indirectly, and shall not authorize or permit any
subsidiary of the Company or any Representative of any of the Acquired
Corporations directly or indirectly to, (i) solicit, initiate, encourage or
induce the making, submission or announcement of any Acquisition Proposal or
take any action that could reasonably be expected to lead to an Acquisition
Proposal, (ii) furnish any information regarding any of the Acquired
Corporations to any Person in connection with or in response to an
Acquisition Proposal, (iii) engage in discussions with any Person with
respect to any Acquisition Proposal, (iv) approve, endorse or recommend any
Acquisition Proposal or (v) enter into any letter of intent or similar
document or any Contract contemplating or otherwise relating to any
Acquisition Transaction; PROVIDED, HOWEVER, that prior to the approval of
this Agreement by the Required Company Shareholder Vote, this Section 4.3(a)
shall
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not prohibit the Company from furnishing nonpublic information regarding the
Acquired Corporations to, or entering into discussions with, any Person in
response to a Superior Offer submitted by such Person (and not withdrawn) if
(1) neither the Company nor any Representative of any of the Acquired
Corporations shall have violated any of the restrictions set forth in this
Section 4.3, (2) the Board of Directors of the Company concludes in good
faith, based upon the advice of its outside legal counsel, that such action
is required in order for the Board of Directors of the Company to comply
with its fiduciary obligations to the Company's shareholders under
applicable law, (3) prior to furnishing any such nonpublic information to,
or entering into discussions with, such Person, the Company gives Parent
written notice of the identity of such Person and of the Company's intention
to furnish nonpublic information to, or enter into discussions with, such
Person, and the Company receives from such Person an executed
confidentiality agreement containing customary limitations on the use and
disclosure of all nonpublic written and oral information furnished to such
Person by or on behalf of the Company, and (4) prior to furnishing any such
nonpublic information to such Person, the Company furnishes such nonpublic
information to Parent (to the extent such nonpublic information has not been
previously furnished by the Company to Parent). Without limiting the
generality of the foregoing, the Company acknowledges and agrees that any
violation of any of the restrictions set forth in the preceding sentence by
any Representative of any of the Acquired Corporations, whether or not such
Representative is purporting to act on behalf of any of the Acquired
Corporations, shall be deemed to constitute a breach of this Section 4.3 by
the Company. In addition to the foregoing, the Company shall (i) provide
Parent with at least twenty-four (24) hours prior notice of any meeting of
the Company's Board of Directors at which the Company's Board of Directors
is reasonably expected to consider a Superior Offer and (ii) not recommend a
Superior Offer to its shareholders for a period of not less than the greater
of two (2) business days or forty-eight (48) hours after Parent's receipt of
a copy of such Superior Offer (pursuant to Section 4.3(b) below).
(b) The Company shall promptly advise Parent orally and in writing of
any Acquisition Proposal (including the identity of the Person making or
submitting such Acquisition Proposal and the terms thereof) that is made or
submitted by any Person during the Pre-Closing Period. The Company shall
keep Parent fully informed with respect to the status of any such
Acquisition Proposal and any modification or proposed modification thereto.
(c) The Company shall immediately cease and cause to be terminated any
existing discussions with any Person that relate to any Acquisition
Proposal.
SECTION 5. ADDITIONAL COVENANTS OF THE PARTIES.
5.1 REGISTRATION STATEMENT; JOINT PROXY STATEMENT/PROSPECTUS.
(a) As promptly as practicable after the date of this Agreement, the
Company and Parent shall prepare and cause to be filed with the SEC the S-4
Registration Statement, together with the Joint Proxy Statement/Prospectus
and any other documents required by the Securities Act, the Exchange Act or
any other Federal, foreign or Blue Sky or related laws in connection with
the Merger and the transactions contemplated by this Agreement ("OTHER
FILINGS"). Each of Parent and the Company will notify the other promptly
upon the receipt of any comments from the SEC or its staff or any other
government officials and of any request by the SEC or its staff or any other
government officials for amendments or supplements to the S-4 Registration
Statement, the Joint Proxy Statement/Prospectus or any Other Filings or for
additional information and will supply the other with copies of all
correspondence between such party or any of its representatives, on the one
hand, and the SEC, or its staff or any other government officials, on the
other hand, with respect to the S-4 Registration Statement, the Joint Proxy
Statement/Prospectus, any Other Filings or the Merger. Each of Parent and
the Company shall use all reasonable efforts to cause the S-4 Registration
Statement (including the Joint Proxy Statement/Prospectus) and any Other
Filings to comply with the rules and regulations promulgated by the SEC, to
respond promptly to any comments of the SEC or its staff and to have the
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S-4 Registration Statement declared effective under the Securities Act as
promptly as practicable after it is filed with the SEC. Parent will use all
reasonable efforts to cause the Joint Proxy Statement/ Prospectus to be
mailed to Parent's stockholders and the Company will use all reasonable
efforts to cause the Joint Proxy Statement/Prospectus to be mailed to the
Company's shareholders, as promptly as practicable after the Form S-4
Registration Statement is declared effective under the Securities Act. The
Company shall promptly furnish to Parent all information concerning the
Acquired Corporations and the Company's shareholders that may be required or
reasonably requested in connection with any action contemplated by this
Section 5.1. If any event relating to any of the Acquired Corporations
occurs, or if the Company becomes aware of any information, that should be
set forth in an amendment or supplement to the S-4 Registration Statement or
the Joint Proxy Statement/Prospectus, then the Company shall promptly inform
Parent thereof and shall cooperate with Parent in filing such amendment or
supplement with the SEC and, if appropriate, in mailing such amendment or
supplement to the shareholders of the Company and the stockholders of
Parent.
(b) Prior to the Effective Time, Parent shall use reasonable efforts to
obtain all regulatory approvals needed to ensure that the Parent Common
Stock to be issued in the Merger will be registered or qualified under the
securities law of every jurisdiction of the United States in which any
registered holder of Company Common Stock has an address of record on the
record date for determining the shareholders entitled to notice of and to
vote at the Company Shareholders' Meeting; PROVIDED, HOWEVER, that Parent
shall not be required (i) to qualify to do business as a foreign corporation
in any jurisdiction in which it is not now qualified or (ii) to file a
general consent to service of process in any jurisdiction.
5.2 COMPANY SHAREHOLDERS' MEETING.
(a) The Company shall take all action necessary under all applicable
Legal Requirements to call, give notice of, convene and hold a meeting of
the holders of Company Common Stock (the "COMPANY SHAREHOLDERS' MEETING") to
consider, act upon and vote upon the adoption of this Agreement and approval
of the Merger. The Company Shareholders' Meeting will be held as promptly as
practicable and in any event within forty-five (45) days after the S-4
Registration Statement is declared effective under the Securities Act;
PROVIDED, HOWEVER, that notwithstanding anything to the contrary contained
in this Agreement, the Company may adjourn or postpone the Company
Shareholders' Meeting to the extent necessary to ensure that any necessary
supplement or amendment to the Joint Proxy Statement/ Prospectus is provided
to the Company's shareholders in advance of a vote on the Merger and this
Agreement or, if as of the time for which Company Shareholders' Meeting is
originally scheduled (as set forth in the Joint Proxy Statement/Prospectus)
there are insufficient shares of Company Common Stock represented (either in
person or by proxy) to constitute a quorum necessary to conduct the business
of the Company's Shareholders' Meeting. The Company shall ensure that the
Company Shareholders' Meeting is called, noticed, convened, held and
conducted, and that all proxies solicited in connection with the Company
Shareholders' Meeting are solicited, in compliance with all applicable Legal
Requirements. The Company's obligation to call, give notice of, convene and
hold the Company Shareholders' Meeting in accordance with this Section
5.2(a) shall not be limited or otherwise affected by the commencement,
disclosure, announcement or submission to the Company of any Acquisition
Proposal, or by any withdrawal, amendment or modification of the
recommendation of the Board of Directors of the Company with respect to the
Merger.
(b) Subject to Section 5.2(c): (i) the Board of Directors of the Company
shall unanimously recommend that the Company's shareholders vote in favor of
and adopt and approve this Agreement and the Merger at the Company
Shareholders' Meeting; (ii) the Joint Proxy Statement/Prospectus shall
include a statement to the effect that the Board of Directors of the Company
has unanimously recommended that the Company's shareholders vote in favor of
and adopt and approve this Agreement and the Merger at the Company
Shareholders' Meeting; and (iii) neither the Board of Directors of the
Company nor any committee thereof shall withdraw, amend or modify, or
propose or resolve to
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withdraw, amend or modify, in a manner adverse to Parent, the unanimous
recommendation of the Board of Directors of the Company that the Company's
shareholders vote in favor of and adopt and approve this Agreement and the
Merger. For purposes of this Agreement, said recommendation of the Board of
Directors shall be deemed to have been modified in a manner adverse to Parent if
said recommendation shall no longer be unanimous.
(c) Nothing in Section 5.2(b) shall prevent the Board of Directors of
the Company from withdrawing, amending or modifying its unanimous
recommendation in favor of the Merger if (i) a Superior Offer is made to the
Company and is not withdrawn, (ii) neither the Company nor any of its
Representatives shall have violated any of the restrictions set forth in
Section 4.3, and (iii) the Board of Directors of the Company concludes in
good faith, based upon the advice of its outside counsel, that, in light of
such Superior Offer, the withdrawal, amendment or modification of such
recommendation is required in order for the Board of Directors of the
Company to comply with its fiduciary obligations to the Company's
shareholders under applicable law. Nothing contained in this Section 5.2
shall limit the Company's obligation to hold and convene the Company
Shareholders' Meeting (regardless of whether the unanimous recommendation of
the Board of Directors of the Company shall have been withdrawn, amended or
modified).
5.3 PARENT STOCKHOLDERS' MEETING.
(a) Parent shall take all action necessary to call, give notice of,
convene and hold a meeting of the holders of Parent Common Stock to consider
and vote upon the issuance of Parent Common Stock in the Merger (the "PARENT
STOCKHOLDERS' MEETING"). The Parent Stockholders' Meeting will be held as
promptly as practicable and in any event within forty-five (45) days after
the S-4 Registration Statement is declared effective under the Securities
Act; PROVIDED, HOWEVER, that notwithstanding anything to the contrary
contained in this Agreement, Parent may adjourn or postpone the Parent
Stockholders' Meeting to the extent necessary to ensure that any necessary
supplement or amendment to the Joint Proxy Statement/Prospectus is provided
to Parent's stockholders in advance of a vote on the issuance of Parent
Common Stock in the Merger or, if as of the time for which the Parent
Stockholders' Meeting is originally scheduled (as set forth in the Joint
Proxy Statement/Prospectus) there are insufficient shares of Parent Common
Stock represented (either in person or by proxy) to constitute a quorum
necessary to conduct the business of the Parent's Stockholders' Meeting.
(b) (i) The board of directors of Parent shall unanimously recommend
that Parent's stockholders vote in favor of the issuance of Parent Common
Stock in the Merger; (ii) the Joint Proxy Statement/ Prospectus shall
include a statement to the effect that the board of directors of Parent has
unanimously recommended that Parent's stockholders vote in favor of the
issuance of Parent Common Stock in the Merger; and (iii) neither the board
of directors of Parent nor any committee thereof shall withdraw, amend or
modify, or propose or resolve to withdraw, amend or modify, in a manner
adverse to the Company, the unanimous recommendation of the board of
directors of Parent that Parent's stockholders vote in favor of the issuance
of Parent Common Stock in the Merger. For purposes of this Agreement, said
recommendation of Parent's board of directors shall be deemed to have been
modified in a manner adverse to the Company if said recommendation shall no
longer be unanimous.
5.4 REGULATORY APPROVALS. The Company and Parent shall use all reasonable
efforts to file, as soon as practicable after the date of this Agreement, all
notices, reports and other documents required to be filed with any Governmental
Body with respect to the Merger and the other transactions contemplated by this
Agreement, and to submit promptly any additional information requested by any
such Governmental Body. The Company and Parent shall respond as promptly as
practicable to any inquiries or requests received from any state attorney
general or other Governmental Body in connection with antitrust or related
matters. Each of the Company and Parent shall (1) give the other party prompt
notice of the commencement of any Legal Proceeding by or before any Governmental
Body with respect to the Merger or any of the other transactions contemplated by
this Agreement, (2) keep the other party informed as to
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the status of any such Legal Proceeding, and (3) promptly inform the other party
of any communication to or from the Federal Trade Commission, the Department of
Justice or any other Governmental Body regarding the Merger. The Company and
Parent will consult and cooperate with one another, and will consider in good
faith the views of one another, in connection with any analysis, appearance,
presentation, memorandum, brief, argument, opinion or proposal made or submitted
in connection with any Legal Proceeding under or any other federal or state
antitrust or fair trade law. In addition, except as may be prohibited by any
Governmental Body or by any Legal Requirement, in connection with any Legal
Proceeding under or any other federal or state antitrust or fair trade law or
any other similar Legal Proceeding, each of the Company and Parent agrees to
permit authorized Representatives of the other party to be present at each
meeting or conference relating to any such Legal Proceeding and to have access
to and be consulted in connection with any document, opinion or proposal made or
submitted to any Governmental Body in connection with any such Legal Proceeding.
5.5 STOCK OPTIONS.
(a) Subject to Section 5.5(b), at the Effective Time, all rights with
respect to Company Common Stock under each Company Option then outstanding
shall be converted into and become rights with respect to Parent Common
Stock, and Parent shall assume each such Company Option in accordance with
the requirements of Section 424(a) of the Code (as in effect as of the date
of this Agreement) and the terms of the stock option plan under which it was
issued and the stock option agreement by which it is evidenced. From and
after the Effective Time, (i) each Company Option assumed by Parent may be
exercised solely for shares of Parent Common Stock, (ii) the number of
shares of Parent Common Stock subject to each such Company Option shall be
equal to the number of shares of Company Common Stock subject to such
Company Option immediately prior to the Effective Time multiplied by the
Exchange Ratio, rounding down to the nearest whole share (with cash, less
the applicable exercise price, being payable for any fraction of a share),
(iii) the per share exercise price under each such Company Option shall be
adjusted by dividing the per share exercise price under such Company Option
by the Exchange Ratio and rounding up to the nearest cent and (iv) any
restriction on the exercise of any such Company Option shall continue in
full force and effect and the term, exercisability, vesting schedule and
other provisions of such Company Option shall otherwise remain unchanged;
PROVIDED, HOWEVER, that each Company Option assumed by Parent in accordance
with this Section 5.5(a) shall, in accordance with its terms, be subject to
further adjustment as appropriate to reflect any stock split, stock
dividend, reverse stock split, reclassification, recapitalization or other
similar transaction subsequent to the Effective Time.
(b) Notwithstanding anything to the contrary contained in this Section
5.5, in lieu of assuming outstanding Company Options in accordance with
Section 5.5(a), Parent may, at its election, cause such outstanding Company
Options to be replaced by issuing equivalent replacement stock options in
substitution therefor that are substantially the same.
(c) The Company shall take all action that may be necessary (under the
plans pursuant to which Company Options are outstanding and otherwise) to
effectuate the provisions of this Section 5.5 and to ensure that, from and
after the Effective Time, holders of Company Options have no rights with
respect thereto other than those specifically provided in this Section 5.5.
5.6 FORM S-8. Parent agrees to file a registration statement on Form S-8
for the shares of Parent Common Stock issuable with respect to assumed Company
Options as soon as reasonably practical (and in any event within sixty (60)
days) after the Effective Time.
5.7 WARRANTS. At the Effective Time, all rights with respect to Company
Common Stock under Company Warrants that are then outstanding shall be converted
into and become rights with respect to Parent Common Stock, and Parent shall
assume each Company Warrant in accordance with the terms (as in effect as of the
date hereof) of such Company Warrants. From and after the Effective Time, (a)
each Company Warrant assumed by Parent may be exercised solely for shares of
Parent Common Stock, (b) the
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number of shares of Parent Common Stock subject to each Company Warrant shall be
equal to the number of shares of Company Common Stock subject to such Company
Warrant immediately prior to the Effective Time multiplied by the Exchange
Ratio, rounding down to the nearest whole share (with cash, less the applicable
exercise price, being payable for any fraction of a share), (c) the per share
exercise price under each such Company Warrant shall be adjusted by dividing the
per share exercise price under such Company Warrant by the Exchange Ratio and
rounding up to the nearest cent and (d) any restriction on the exercise of any
Company Warrant shall continue in full force and effect and the term,
exercisability, schedule and other provisions of such Company Warrant shall
otherwise remain unchanged; PROVIDED, HOWEVER, that such Company Warrant shall,
in accordance with its terms, be subject to further adjustment as appropriate to
reflect any stock split, stock dividend, recapitalization or other similar
transaction subsequent to the Effective Time. The Company shall take all action
that may be necessary (under the Company Warrants and otherwise) to effectuate
the provisions of this Section 5.7 and to ensure that, from and after the
Effective Time, holders of Company Warrants have no rights with respect thereto
other than those specifically provided herein.
5.8 INDEMNIFICATION OF OFFICERS AND DIRECTORS.
(a) All rights to indemnification existing in favor of the current
directors and officers of the Company for acts and omissions occurring prior
to the Effective Time, as provided in the Company's Bylaws (as in effect as
of the date of this Agreement) and as provided in any indemnification
agreements between the Company and said officers and directors (as in effect
as of the date of this Agreement), shall survive the Merger and shall be
observed by Parent and the Surviving Corporation for a period of not less
than six (6) years from the Effective Time.
(b) From the Effective Time until the third anniversary of the date on
which the Merger becomes effective, the Surviving Corporation shall maintain
in effect, for the benefit of the current directors and officers of the
Company with respect to acts or omissions occurring prior to the Effective
Time, the lesser of (i) the existing amount of coverage of the existing
policy of directors' and officers' liability insurance maintained by the
Company as of the date of this Agreement (the "EXISTING POLICY") and (ii)
the amount of coverage purchased by 150% of the amount of the last annual
premium paid by the Company prior to the date of this Agreement for the
Existing Policy; PROVIDED, HOWEVER, that the Surviving Corporation may
substitute for the Existing Policy a policy or policies of comparable
coverage.
5.9 POOLING OF INTERESTS; TAX FREE REORGANIZATION. Each of the Company and
Parent agrees (a) not to take any action during the Pre-Closing Period that
would adversely affect the ability of Parent to account for the Merger as a
"pooling of interests," (b) to use all reasonable efforts to attempt to ensure
that none of its "affiliates" (as that term is used in Rule 145 promulgated
under the Securities Act) takes any action that could adversely affect the
ability of Parent to account for the Merger as a "pooling of interests" and (c)
not to take any action either prior to or after the Effective Time that could
reasonably be expected to cause the Merger to fail to qualify as a
"reorganization" under Section 368(a) of the Code. The Company agrees to provide
KPMG Peat Marwick LLP and Grant Thornton LLP such letters as may be reasonably
requested by either of them with respect to the letters referred to in Sections
6.6(b) and 6.6(c).
5.10 ADDITIONAL AGREEMENTS.
(a) Subject to Section 5.10(b), Parent and the Company shall use all
reasonable efforts to take, or cause to be taken, all actions necessary to
consummate the Merger and make effective the other transactions contemplated
by this Agreement. Without limiting the generality of the foregoing, but
subject to Section 5.10(b), each party to this Agreement (i) shall make all
filings (if any) and give all notices (if any) required to be made and given
by such party in connection with the Merger and the other transactions
contemplated by this Agreement, (ii) shall use all reasonable efforts to
obtain each Consent (if any) required to be obtained (pursuant to any
applicable Legal Requirement or Contract,
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or otherwise) by such party in connection with the Merger or any of the
other transactions contemplated by this Agreement, and (iii) shall use all
reasonable efforts to lift any restraint, injunction or other legal bar to
the Merger. The Company shall promptly deliver to Parent a copy of each such
filing made, each such notice given and each such Consent obtained by the
Company during the Pre-Closing Period.
(b) Notwithstanding anything to the contrary contained in this
Agreement, Parent shall not have any obligation under this Agreement: (i) to
dispose or cause any of its subsidiaries to dispose of any assets, or to
commit to cause any of the Acquired Corporations to dispose of any assets;
(ii) to discontinue or cause any of its subsidiaries to discontinue offering
any product, or to commit to cause any of the Acquired Corporations to
discontinue offering any product; (iii) to license or otherwise make
available, or cause any of its subsidiaries to license or otherwise make
available, to any Person, any technology, software or other Proprietary
Asset, or to commit to cause any of the Acquired Corporations to license or
otherwise make available to any Person any technology, software or other
Proprietary Asset; (iv) to hold separate or cause any of its subsidiaries to
hold separate any assets or operations (either before or after the Closing
Date), or to commit to cause any of the Acquired Corporations to hold
separate any assets or operations; or (v) to make or cause any of its
Subsidiaries to make any commitment (to any Governmental Body or otherwise)
regarding its future operations or the future operations of any of the
Acquired Corporations.
5.11 CONFIDENTIALITY. The parties acknowledge that the Company and Parent
have previously executed a Mutual Non-Disclosure Agreement, dated as of June 16,
1998 (the "CONFIDENTIALITY AGREEMENT"), which Confidentiality Agreement will
continue in full force and effect in accordance with its terms.
5.12 DISCLOSURE. Parent and the Company have agreed to the text of a joint
press release announcing the signing of this Agreement and shall consult with
each other before issuing any other press release or otherwise making any public
statement with respect to the Merger or any of the other transactions
contemplated by this Agreement. Without limiting the generality of the
foregoing, the Company shall not, and shall not permit any of its
Representatives to, make any disclosure regarding the Merger or any of the other
transactions contemplated by this Agreement unless (a) Parent shall have
approved such disclosure or (b) the Company shall have been advised in writing
by its outside legal counsel that such disclosure is required by applicable law.
5.13 TAX MATTERS.
(a) At or prior to the filing of the S-4 Registration Statement, Parent
and Merger Sub and the Company shall execute and deliver to Cooley Godward
LLP and to Saul, Ewing, Remick & Saul LLP tax representation letters in the
forms attached as Exhibit G-1 and G-2, as applicable;
(b) Parent, Merger Sub and the Company shall each confirm to Cooley
Godward LLP and to Saul, Ewing, Remick & Saul LLP the accuracy and
completeness as of the Effective Time of the tax representation letters
delivered pursuant to Section 5.13(a);
(c) Parent, Merger Sub and the Company shall use all reasonable efforts
to cause the Merger to qualify as a tax free reorganization under Section
368(a)(1) of the Code; and
(d) Following delivery of the tax representation letters pursuant to
Section 5.13(a), each of Parent and the Company shall use its reasonable
efforts to cause Cooley Godward LLP and Saul, Ewing, Remick & Saul LLP,
respectively, to deliver promptly to it a legal opinion satisfying the
requirements of Item 601 of Regulation S-K promulgated under the Securities
Act. In rendering such opinions, each of such counsel shall be entitled to
rely on the tax representation letters delivered pursuant to Section
5.13(a).
5.14 RESIGNATION OF OFFICERS AND DIRECTORS. The Company shall use all
reasonable efforts to obtain and deliver to Parent prior to the Closing the
resignation of each officer and director of the Company.
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5.15 NASDAQ LISTING. Parent shall use all reasonable efforts to have the
shares of Parent Common Stock issuable to the shareholders of the Company
pursuant to the Agreement and such other shares required to be reserved for
issuance in connection with the Merger authorized for listing on Nasdaq upon
official notice of issuance.
5.16 FIRPTA MATTERS. At the Closing, (a) the Company shall deliver to
Parent a statement (in such form as may be reasonably requested by counsel to
Parent) conforming to the requirements of Section 1.897 - 2(h)(1)(i) of the
United States Treasury Regulations, and (b) the Company shall deliver to the
Internal Revenue Service the notification required under Section 1.897 - 2(h)(2)
of the United States Treasury Regulations.
5.17 PARENT BOARD OF DIRECTORS. As soon as practicable after the Effective
Time, Parent shall use reasonable efforts to nominate and appoint (i) Warren V.
Musser, or such other nominee designated by the Company, to Class I of its Board
of Directors to serve until the annual meeting of stockholders to be held in
1999 and (ii) David S. Lipson, or such other nominee designated by the Company,
to Class II of its Board of Directors to serve until the annual meeting of
stockholders to be held in 2000.
5.18 ACCESS TO INFORMATION. During the Pre-Closing Period, Parent shall,
and shall cause its Representatives, to: (a) provide the Company and its
Representatives with reasonable access to Parent's Representatives, personnel
and assets and to all existing books, records, Tax Returns, work papers and
other documents and information relating to Parent and its Subsidiaries; and (b)
provide the Company and its Representatives with such copies of the existing
books, records, Tax Returns, work papers and other documents and information
relating to Parent and its Subsidiaries, and with such additional financial,
operating and other data and information regarding Parent and its Subsidiaries,
as the Company may reasonably request. Without limiting the generality of the
foregoing, during the Pre-Closing Period, Parent shall promptly provide the
Company with copies of any notice, report or other document filed with or sent
to any Governmental Body in connection with the Merger or any of the other
transactions contemplated by this Agreement.
SECTION 6. CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT AND MERGER SUB.
The obligations of Parent and Merger Sub to effect the Merger and otherwise
consummate the transactions contemplated by this Agreement are subject to the
satisfaction, at or prior to the Closing, of each of the following conditions,
and upon consummation of the Closing, all conditions herein shall be deemed
satisfied and any liability for failure to satisfy any condition herein shall be
precluded:
6.1 ACCURACY OF REPRESENTATIONS. The representations and warranties of the
Company contained in this Agreement shall have been accurate in all material
respects as of the date of this Agreement and shall be accurate in all material
respects as of the Closing Date as if made on and as of the Closing Date;
PROVIDED, HOWEVER, that any representations and warranties qualified by
"Material Adverse Effect" or other materiality qualifications are accurate in
all respects as of the date of this Agreement and shall be accurate in all
respects as of the Closing Date as if made on and as of the Closing Date.
6.2 PERFORMANCE OF COVENANTS. Each covenant or obligation that the Company
is required to comply with or to perform at or prior to the Closing shall have
been complied with and performed in all material respects.
6.3 EFFECTIVENESS OF REGISTRATION STATEMENT. The S-4 Registration
Statement shall have become effective in accordance with the provisions of the
Securities Act, and no stop order shall have been issued by the SEC with respect
to the S-4 Registration Statement.
6.4 STOCKHOLDER APPROVAL. This Agreement and the Merger shall have been
duly approved by the Required Company Shareholder Vote, and the issuance of
Parent Common Stock in the Merger shall have been duly approved by the Required
Parent Stockholder Vote. Fewer than 10% of the outstanding shares of Company
Common Stock shall be Dissenting Shares.
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6.5 CONSENTS. All material Consents required to be obtained in connection
with the Merger and the other transactions contemplated by this Agreement
(including the Consents identified in Part 2.25 of the Company Disclosure
Schedule) shall have been obtained and shall be in full force and effect.
6.6 AGREEMENTS AND DOCUMENTS. Parent and Merger Sub shall have received
the following agreements and documents, each of which shall be in full force and
effect:
(a) the statement referred to in Section 5.16(b), executed by the
Company;
(b) a letter from KPMG Peat Marwick LLP, dated as of the Closing Date
and addressed to Parent and the Company, reasonably satisfactory in form and
substance to Parent and Grant Thornton LLP, to the effect that, after
reasonable investigation, KPMG Peat Marwick LLP is not aware of any fact
concerning the Company or any of the Company's shareholders or affiliates
that could preclude Parent from accounting for the Merger as a "pooling of
interests" in accordance with GAAP, Accounting Principles Board Opinion No.
16 and all published rules, regulations and policies of the SEC;
(c) a letter from Grant Thornton LLP, dated as of the Closing Date and
addressed to Parent, reasonably satisfactory in form and substance to
Parent, to the effect that, after reasonable investigation, Grant Thornton
LLP is not aware of any fact concerning Parent or any of Parent's
stockholders or affiliates that could preclude Parent from accounting for
the Merger as a "pooling of interests" in accordance with GAAP, Accounting
Principles Board Opinion No. 16 and all published rules, regulations and
policies of the SEC;
(d) a legal opinion of Cooley Godward LLP, dated as of the Closing Date
and addressed to Parent, to the effect that the Merger will constitute a
reorganization within the meaning of Section 368 of the Code (it being
understood that, in rendering such opinion, Cooley Godward LLP may rely upon
the tax representation letters referred to in Section 5.13);
(e) a certificate executed on behalf of the Company by its Chief
Executive Officer confirming that the conditions set forth in Sections 6.1,
6.2, 6.4, 6.5, 6.7 and 6.8 have been duly satisfied; and
(f) the written resignations of all officers and directors of the
Company, effective as of the Effective Time.
6.7 NO MATERIAL ADVERSE CHANGE. There shall have been no material adverse
change in the business, condition, assets, liabilities, operations or financial
performance of the Acquired Corporations since the date of this Agreement.
6.8 FIRPTA COMPLIANCE. The Company shall have filed with the Internal
Revenue Service the notification referred to in Section 5.16.
6.9 LISTING. The shares of Parent Common Stock to be issued in the Merger
shall have been authorized for listing on Nasdaq, subject to notice of issuance.
6.10 NO RESTRAINTS. No temporary restraining order, preliminary or
permanent injunction or other order preventing the consummation of the Merger
shall have been issued by any court of competent jurisdiction and remain in
effect, and there shall not be any Legal Requirement enacted or deemed
applicable to the Merger that makes consummation of the Merger illegal.
6.11 NO GOVERNMENTAL LITIGATION. There shall not be pending or threatened
any Legal Proceeding in which a Governmental Body is or is threatened to become
a party or is otherwise involved: (a) challenging or seeking to restrain or
prohibit the consummation of the Merger or any of the other transactions
contemplated by this Agreement; (b) relating to the Merger and seeking to obtain
from Parent or any of its subsidiaries any damages that may be material to
Parent; (c) seeking to prohibit or limit in any material respect Parent's
ability to vote, receive dividends with respect to or otherwise exercise
ownership rights with respect to the stock of the Surviving Corporation; or (d)
which would materially and adversely affect
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the right of Parent, the Surviving Corporation or any subsidiary of Parent to
own the assets or operate the business of the Company.
6.12 NO OTHER LITIGATION. There shall not be pending any Legal Proceeding
in which there is a reasonable possibility of an outcome that would have a
Material Adverse Effect on the Acquired Corporations or on Parent: (a)
challenging or seeking to restrain or prohibit the consummation of the Merger or
any of the other transactions contemplated by this Agreement; (b) relating to
the Merger and seeking to obtain from Parent or any of its subsidiaries any
damages that may be material to Parent, (c) seeking to prohibit or limit in any
material respect Parent's ability to vote, receive dividends with respect to or
otherwise exercise ownership rights with respect to the stock of the Surviving
Corporation; or (d) which would affect adversely the right of Parent, the
Surviving Corporation or any subsidiary of Parent to own the assets or operate
the business of the Company.
SECTION 7. CONDITIONS PRECEDENT TO OBLIGATION OF THE COMPANY.
The obligation of the Company to effect the Merger and otherwise consummate
the transactions contemplated by this Agreement are subject to the satisfaction,
at or prior to the Closing, of the following conditions, and upon consummation
of the Closing, all conditions herein shall be deemed satisfied and any
liability for failure to satisfy any condition herein shall be precluded:
7.1 ACCURACY OF REPRESENTATIONS. The representations and warranties of
Parent and Merger Sub contained in this Agreement shall have been accurate in
all material respects as of the date of this Agreement and shall be accurate in
all material respects as of the Closing Date as if made on and as of the Closing
Date; PROVIDED, HOWEVER, that any representations and warranties qualified by
"Material Adverse Effect" or other materiality qualifications are accurate in
all respects as of the date of this Agreement and shall be accurate in all
respects as of the Closing Date as if made on and as of the Closing Date.
7.2 PERFORMANCE OF COVENANTS. All of the covenants and obligations that
Parent and Merger Sub are required to comply with or to perform at or prior to
the Closing shall have been complied with and performed in all material
respects.
7.3 EFFECTIVENESS OF REGISTRATION STATEMENT. The S-4 Registration
Statement shall have become effective in accordance with the provisions of the
Securities Act, and no stop order shall have been issued by the SEC with respect
to the S-4 Registration Statement.
7.4 STOCKHOLDER APPROVAL. This Agreement and the Merger shall have been
duly approved by the Required Company Shareholder Vote, and the issuance of
Parent Common Stock in the Merger shall have been duly approved by the Required
Parent Stockholder Vote.
7.5 DOCUMENTS. The Company shall have received the following documents:
(a) a Registration Rights Agreement in the form of Exhibit H, executed
by Parent and each person identified on Exhibit I.
(b) a legal opinion of Saul, Ewing, Remick & Saul LLP, dated as of the
Closing Date and addressed to the Company, to the effect that the Merger
will constitute a reorganization within the meaning of Section 368 of the
Code (it being understood that, in rendering such opinion, Saul, Ewing,
Remick & Saul LLP may rely upon tax representation letters including those
referred to in Section 5.13);
(c) a letter from KPMG Peat Marwick LLP, dated as of a date no earlier
than three (3) days prior to the Closing Date and addressed to the Company,
reasonably satisfactory in form and substance to Parent and Grant Thornton
LLP, to the effect that, after reasonable investigation, KPMG Peat Marwick
LLP is not aware of any fact concerning the Company or any of the Company's
shareholders or affiliates that could preclude Parent from accounting for
the Merger as a "pooling of
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interests" in accordance with GAAP, Accounting Principles Board Opinion No.
16 and all published rules, regulations and policies of the SEC;
(d) a letter from Grant Thornton LLP, dated as of a date no earlier than
three (3) days prior to the Closing Date and addressed to Parent, reasonably
satisfactory in form and substance to Parent, to the effect that, after
reasonable investigation, Grant Thornton LLP is not aware of any fact
concerning Parent or any of Parent's stockholders or affiliates that would
preclude Parent from accounting for the Merger as a "pooling of interests"
in accordance with GAAP, Accounting Principles Board Opinion No. 16 and all
published rules, regulations and policies of the SEC; and
(e) a certificate executed on behalf of Parent by an executive officer
of Parent, confirming that conditions set forth in Sections 7.1, 7.2, 7.3
and 7.6 have been duly satisfied.
7.6 NO MATERIAL ADVERSE CHANGE. There shall have been no material adverse
change in Parent's business, condition, assets, liabilities, operations or
financial performance since the date of this Agreement.
7.7 LISTING. The shares of Parent Common Stock to be issued in the Merger
shall have been authorized for listing on Nasdaq, subject to notice of issuance.
7.8 NO RESTRAINTS. No temporary restraining order, preliminary or
permanent injunction or other order preventing the consummation of the Merger by
the Company shall have been issued by any court of competent jurisdiction and
remain in effect, and there shall not be any Legal Requirement enacted or deemed
applicable to the Merger that makes consummation of the Merger by the Company
illegal.
SECTION 8. TERMINATION.
8.1 TERMINATION. This Agreement may be terminated prior to the Effective
Time, whether before or after approval of the Merger by the shareholders of the
Company:
(a) by mutual written consent of the Boards of Directors of the Parent
and the Company;
(b) by either Parent or the Company if the Merger shall not have been
consummated by January 31, 1999 (unless the failure to consummate the Merger
is attributable to a failure on the part of the party seeking to terminate
this Agreement to perform any material obligation required to be performed
by such party at or prior to the Effective Time);
(c) by either Parent or the Company if a court of competent jurisdiction
or other Governmental Body shall have issued a final and non-appealable
order, decree or ruling, or shall have taken any other action, having the
effect of permanently restraining, enjoining or otherwise prohibiting the
Merger;
(d) by either Parent or the Company if (i) the Company Shareholders'
Meeting shall have been held (either on the date for which such Meeting was
originally scheduled or pursuant to any permissible adjournment or
postponement) and (ii) this Agreement and the Merger shall not have been
adopted and approved at such meeting by the Company Required Shareholder
Vote (PROVIDED that the right to terminate this Agreement under this Section
8.1(d) shall not be available to the Company where the failure to obtain
Company shareholder approval shall have been caused by the action or failure
to act of the Company and such action or failure to act constitutes a
material breach by the Company of this Agreement);
(e) by Parent (at any time prior to the adoption and approval of this
Agreement and the Merger by the Company Required Shareholder Vote) if a
Triggering Event shall have occurred;
(f) by either Parent or Company if (i) the Parent Stockholders' Meeting
shall have been held (either on the date for which such Meeting was
originally scheduled or pursuant to any permissible
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adjournment or postponement) and (ii) issuance of the Parent Common Stock in
the Merger shall not have been approved at such meeting by the Parent
Required Stockholder Vote;
(g) by Parent if any of the Company's representations and warranties
contained in this Agreement shall be or shall have become materially
inaccurate, or if any of the Company's covenants contained in this Agreement
shall have been breached in any material respect; PROVIDED, HOWEVER, that if
an inaccuracy in the Company's representations and warranties or a breach of
a covenant by the Company is curable by the Company and the Company is
continuing to exercise all reasonable efforts to cure such inaccuracy or
breach, then Parent may not terminate this Agreement under this Section
8.1(g) on account of such inaccuracy or breach; or
(h) by the Company if any of Parent's representations and warranties
contained in this Agreement shall be or shall have become materially
inaccurate, or if any of Parent's covenants contained in this Agreement
shall have been breached in any material respect; PROVIDED, HOWEVER, that if
an inaccuracy in Parent's representations and warranties or a breach of a
covenant by Parent is curable by Parent and Parent is continuing to exercise
all reasonable efforts to cure such inaccuracy or breach, then the Company
may not terminate this Agreement under this Section 8.1(h) on account of
such inaccuracy or breach.
8.2 NOTICE OF TERMINATION; EFFECT OF TERMINATION. Any termination under
Section 8.1 above will be effective immediately upon the delivery of written
notice of the terminating party to the other parties hereto. In the event of the
termination of this Agreement as provided in Section 8.1, this Agreement shall
be of no further force or effect; PROVIDED, HOWEVER, that (i) this Section 8.2,
Section 8.3 and Section 9 shall survive the termination of this Agreement and
shall remain in full force and effect, (ii) the termination of this Agreement
shall not relieve any party from any liability for any breach of this Agreement
and (iii) no termination of this Agreement shall affect the obligations of the
parties contained in the Confidentiality Agreement, all of which obligations
shall survive termination of this Agreement in accordance with their terms.
8.3 EXPENSES; TERMINATION FEES.
(a) Except as set forth in this Section 8.3, all fees and expenses
incurred in connection with this Agreement and the transactions contemplated
by this Agreement shall be paid by the party incurring such expenses,
whether or not the Merger is consummated; PROVIDED, HOWEVER, that Parent and
the Company shall share equally all fees and expenses, other than attorneys'
fees, incurred in connection with the printing and filing of the S-4
Registration Statement and the Joint Proxy Statement/ Prospectus and any
amendments or supplements thereto.
(b) If this Agreement is terminated by Parent pursuant to Section
8.1(e), then the Company shall pay to Parent (at the time specified in
Section 8.3(c)), a nonrefundable fee equal to five million dollars
($5,000,000) (the "TERMINATION FEE") in cash within three (3) days of such
termination.
(c) If this Agreement is terminated by Company or Parent pursuant to
Section 8.1(d) and an Acquisition Transaction is consummated or a proposed
Acquisition Transaction is publicly announced at anytime prior to the first
anniversary of the date of this Agreement, Company shall pay to Parent the
Termination Fee contemporaneously with the earlier of the consummation of
such Acquisition Transaction or such announcement regarding a proposed
Acquisition Agreement.
SECTION 9. MISCELLANEOUS PROVISIONS.
9.1 AMENDMENT. This Agreement may be amended with the approval of the
respective boards of directors of the Company and Parent at any time (whether
before or after approval of this Agreement and the Merger by the shareholders of
the Company; and whether before or after approval of the issuance of Parent
Common Stock in the Merger by Parent's stockholders); PROVIDED, HOWEVER, that
(i) after any such approval of this Agreement and the Merger by the Company's
shareholders, no amendment shall be made
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which by law or NASD regulation requires further approval of the shareholders of
the Company without the further approval of such shareholders, and (ii) after
any such approval of the issuance of Parent Company Stock in the Merger by
Parent's stockholders, no amendment shall be made which by law or NASD
regulation requires further approval of Parent's stockholders without the
further approval of such stockholders. This Agreement may not be amended except
by an instrument in writing signed on behalf of each of the parties hereto.
9.2 WAIVER.
(a) No failure on the part of any party to exercise any power, right,
privilege or remedy under this Agreement, and no delay on the part of any
party in exercising any power, right, privilege or remedy under this
Agreement, shall operate as a waiver of such power, right, privilege or
remedy; and no single or partial exercise of any such power, right,
privilege or remedy shall preclude any other or further exercise thereof or
of any other power, right, privilege or remedy.
(b) No party shall be deemed to have waived any claim arising out of
this Agreement, or any power, right, privilege or remedy under this
Agreement, unless the waiver of such claim, power, right, privilege or
remedy is expressly set forth in a written instrument duly executed and
delivered on behalf of such party; and any such waiver shall not be
applicable or have any effect except in the specific instance in which it is
given.
9.3 NO SURVIVAL OF REPRESENTATIONS AND WARRANTIES. None of the
representations and warranties contained in this Agreement or in any certificate
delivered pursuant to this Agreement shall survive the Merger.
9.4 ENTIRE AGREEMENT; COUNTERPARTS. This Agreement and the other
agreements referred to herein constitute the entire agreement and supersede all
prior agreements and understandings, both written and oral, among or between any
of the parties with respect to the subject matter hereof and thereof. This
Agreement may be executed in several counterparts, each of which shall be deemed
an original and all of which shall constitute one and the same instrument.
9.5 APPLICABLE LAW; JURISDICTION. THIS AGREEMENT IS MADE UNDER, AND SHALL
BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF
CALIFORNIA APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED SOLELY THEREIN,
WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAW. In any action between
or among any of the parties, whether arising out of this Agreement or otherwise,
(a) each of the parties irrevocably and unconditionally consent in the State of
California; (b) if any such action is commenced in a state court, then, subject
to applicable law, no party shall object to the removal of such action to any
federal court located in the law, no party shall object to the removal of such
action to any federal court located in the State of California; (c) each of the
parties irrevocably waivers the right to trial by jury; and (d) each of the
parties irrevocably consents to service of process by first class certified
mail, return receipt requested, postage prepaid, to the address at which such
party is to receive notice in accordance with Section 9.9.
9.6 DISCLOSURE SCHEDULE. Each of the Company Disclosure Schedule and the
Parent Disclosure Schedule shall be arranged in separate parts corresponding to
the numbered and lettered sections contained in Sections 2 and 3, respectively,
and the information disclosed in any numbered or lettered part shall be deemed
to relate to and to qualify only the particular representation or warranty set
forth in the corresponding numbered or lettered section in Section 2 or 3,
respectively, and shall not be deemed to relate to or to qualify any other
representation or warranty unless such relationship or qualification is
reasonably apparent.
9.7 ATTORNEYS' FEES. In any action at law or suit in equity to enforce
this Agreement or the rights of any of the parties hereunder, the prevailing
party in such action or suit shall be entitled to receive a
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reasonable sum for its attorneys' fees and all other reasonable costs and
expenses incurred in such action or suit.
9.8 ASSIGNABILITY. This Agreement shall be binding upon, and shall be
enforceable by and inure solely to the benefit of, the parties hereto and their
respective successors and assigns; PROVIDED, HOWEVER, that neither this
Agreement nor any of the Company's rights hereunder may be assigned by the
Company without the prior written consent of Parent, and any attempted
assignment of this Agreement or any of such rights by the Company without such
consent shall be void and of no effect. Except as set forth in Section 5.8 with
respect to the current directors and officers of the Company, nothing in this
Agreement, express or implied, is intended to or shall confer upon any Person
any right, benefit or remedy of any nature whatsoever under or by reason of this
Agreement.
9.9 NOTICES. Any notice or other communication required or permitted to be
delivered to any party under this Agreement shall be in writing and shall be
deemed properly delivered, given and received when delivered (by hand, by
registered mail, by courier or express delivery service or by facsimile) to the
address or facsimile telephone number set forth beneath the name of such party
below (or to such other address or facsimile telephone number as such party
shall have specified in a written notice given to the other parties hereto):
<TABLE>
<CAPTION>
if to Parent: FIRST CONSULTING GROUP, INC.
111 W. Ocean Boulevard, 4th Floor
Long Beach, CA 90802
Facsimile: (562) 432-1932
<S> <C>
if to Merger Sub: FOXTROT ACQUISITION SUB, INC.
111 W. Ocean Boulevard, 4th Floor
Long Beach, CA 90802
Facsimile: (562) 432-1932
if to the INTEGRATED SYSTEMS CONSULTING GROUP, INC.
Company: 575 East Swedesford Road
Wayne, PA 19087
Facsimile: (610) 989-7100
</TABLE>
9.10 COOPERATION. The Company agrees to cooperate fully with Parent and to
execute and deliver such further documents, certificates, agreements and
instruments and to take such other actions as may be reasonably requested by
Parent to evidence or reflect the transactions contemplated by this Agreement
and to carry out the intent and purposes of this Agreement.
9.11 CONSTRUCTION.
(a) For purposes of this Agreement, whenever the context requires: the
singular number shall include the plural, and vice versa; the masculine
gender shall include the feminine and neuter genders; the feminine gender
shall include the masculine and neuter genders; and the neuter gender shall
include masculine and feminine genders.
(b) The parties hereto agree that any rule of construction to the effect
that ambiguities are to be resolved against the drafting party shall not be
applied in the construction or interpretation of this Agreement.
(c) As used in this Agreement, the words "include" and "including," and
variations thereof, shall not be deemed to be terms of limitation, but
rather shall be deemed to be followed by the words "without limitation."
(d) Except as otherwise indicated, all references in this Agreement to
"Sections" and "Exhibits" are intended to refer to Sections of this
Agreement and Exhibits to this Agreement.
A-41
<PAGE>
IN WITNESS WHEREOF, the parties have caused this AGREEMENT AND PLAN OF
MERGER AND REORGANIZATION to be executed as of the date first above written.
<TABLE>
<CAPTION>
FIRST CONSULTING GROUP, INC.
<S> <C>
By: /s/ LUTHER J. NUSSBAUM
-------------------------------------------
Printed Name: Luther J. Nussbaum
-------------------------------------------
Title: Executive Vice President
--------------------------------------------
FOXTROT ACQUISITION SUB, INC.
By: /s/ LUTHER J. NUSSBAUM
-------------------------------------------
Printed Name: Luther J. Nussbaum
-------------------------------------------
Title: President
--------------------------------------------
INTEGRATED SYSTEMS CONSULTING GROUP, INC.
By: /s/ DAVID S. LIPSON
-------------------------------------------
Printed Name: David S. Lipson
-------------------------------------------
Title: President
--------------------------------------------
</TABLE>
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
SIGNATURE PAGE
A-42
<PAGE>
EXHIBITS INDEX
<TABLE>
<CAPTION>
Exhibit A......................... Certain Definitions
<S> <C>
Exhibit B-1....................... Company Shareholders who have executed Voting Agreements
Exhibit B-2....................... Parent Stockholders who have executed a Voting Agreement
Exhibit C-1....................... Form of Voting Agreement for Company Shareholders
Exhibit C-2....................... Form of Voting Agreement for Parent Stockholders
Exhibit D-1....................... Individuals executing Company Affiliate Agreement in
Form of Exhibit E-1
Exhibit D-2....................... Individuals executing Parent Affiliate Agreement in Form
of Exhibit E-2
Exhibit E-1....................... Form of Affiliate Agreement for Company Affiliates
Exhibit E-2....................... Form of Affiliate Agreement for Parent Affiliates
Exhibit F-1....................... Form of Surviving Corporation Articles of Incorporation
Exhibit F-2....................... Form of Surviving Corporation Bylaws
Exhibit G-1....................... Form of Tax Representation Letter to be delivered by
Parent and Merger Sub
Exhibit G-2....................... Form of Tax Representation Letter to be delivered by
Company
Exhibit H......................... Form of Registration Rights Agreement
Exhibit I......................... Individuals to execute Registration Rights Agreement in
Form of Exhibit H
</TABLE>
A-43
<PAGE>
EXHIBIT A
CERTAIN DEFINITIONS
For purposes of the Agreement (including this Exhibit A):
ACQUIRED CORPORATION CONTRACT. "ACQUIRED CORPORATION CONTRACT" shall mean
any Contract: (a) to which any of the Acquired Corporations is a party; (b) by
which any of the Acquired Corporations or any asset of any of the Acquired
Corporations is or may become bound or under which any of the Acquired
Corporations has, or may become subject to, any obligation; or (c) under which
any of the Acquired Corporations has or may acquire any right or interest.
ACQUIRED CORPORATION PROPRIETARY ASSET. "ACQUIRED CORPORATION PROPRIETARY
ASSET" shall mean any Proprietary Asset owned by or licensed to any of the
Acquired Corporations or otherwise used by any of the Acquired Corporations.
ACQUISITION PROPOSAL. "ACQUISITION PROPOSAL" shall mean any offer or
proposal (other than an offer or proposal by Parent) contemplating or otherwise
relating to any Acquisition Transaction.
ACQUISITION TRANSACTION. "ACQUISITION TRANSACTION" shall mean any
transaction or series of related transactions involving:
any merger, consolidation, share exchange, business combination,
issuance of securities, acquisition of securities, tender offer, exchange
offer or other similar transaction (i) in which any of the Acquired
Corporations is a constituent corporation, (ii) in which a Person or "group"
(as defined in the Exchange Act and the rules promulgated thereunder) of
Persons directly or indirectly acquires the Company or more than fifty
percent (50%) of the Company's business or directly or indirectly acquires
beneficial or record ownership of securities representing more than twenty
percent (20%) of the outstanding securities of any class of voting
securities of any of the Acquired Corporations, or (iii) in which any of the
Acquired Corporations issues securities representing more than twenty
percent (20%) of the outstanding securities of any class of voting
securities of the Company;
(a) any sale, lease (other than in the ordinary course of business),
exchange, transfer, license (other than in the ordinary course of business),
acquisition or disposition of more than 50% of the assets of the Company; or
(b) any liquidation or dissolution of the Company.
AGREEMENT. "AGREEMENT" shall mean the Agreement and Plan of Merger and
Reorganization to which this Exhibit A is attached, as it may be amended from
time to time.
COMPANY COMMON STOCK. "COMPANY COMMON STOCK" shall mean the Common Stock,
$.005 par value per share, of the Company.
CONSENT. "CONSENT" shall mean any approval, consent, ratification,
permission, waiver or authorization (including any Governmental Authorization).
CONTRACT. "CONTRACT" shall mean any written, oral or other agreement,
contract, subcontract, lease, understanding, instrument, note, option, warranty,
purchase order, license, sublicense, insurance policy, benefit plan or legally
binding commitment or undertaking of any nature.
ENCUMBRANCE. "ENCUMBRANCE" shall mean any lien, pledge, hypothecation,
charge, mortgage, security interest, encumbrance, claim, infringement,
interference, option, right of first refusal, preemptive right, community
property interest or restriction of any nature (including any restriction on the
voting of any security, any restriction on the transfer of any security or other
asset, any restriction on the receipt of any income derived from any asset, any
restriction on the use of any asset and any restriction on the possession,
exercise or transfer of any other attribute of ownership of any asset).
A-A-1
<PAGE>
ENTITY. "ENTITY" shall mean any corporation (including any non-profit
corporation), general partnership, limited partnership, limited liability
partnership, joint venture, estate, trust, company (including any limited
liability company or joint stock company), firm or other enterprise,
association, organization or entity.
EXCHANGE ACT. "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934,
as amended.
GOVERNMENTAL AUTHORIZATION. "GOVERNMENTAL AUTHORIZATION" shall mean any: (a)
permit, license, certificate, franchise, permission, clearance, registration,
qualification or authorization issued, granted, given or otherwise made
available by or under the authority of any Governmental Body or pursuant to any
Legal Requirement; or (b) right under any Contract with any Governmental Body.
GOVERNMENTAL BODY. "GOVERNMENTAL BODY" shall mean any: (a) nation, state,
commonwealth, province, territory, county, municipality, district or other
jurisdiction of any nature; (b) federal, state, local, municipal, foreign or
other government; or (c) governmental or quasi-governmental authority of any
nature (including any governmental division, department, agency, commission,
instrumentality, official, organization, unit, body or Entity and any court or
other tribunal).
LEGAL PROCEEDING. "LEGAL PROCEEDING" shall mean any action, suit,
litigation, arbitration, proceeding (including any civil, criminal,
administrative, investigative or appellate proceeding), hearing, inquiry, audit,
examination or investigation commenced, brought, conducted or heard by or
before, or otherwise involving, any court or other Governmental Body or any
arbitrator or arbitration panel.
LEGAL REQUIREMENT. "LEGAL REQUIREMENT" shall mean any federal, state, local,
municipal, foreign or other law, statute, constitution, principle of common law,
resolution, ordinance, code, edict, decree, rule, regulation, ruling or
requirement issued, enacted, adopted, promulgated, implemented or otherwise put
into effect by or under the authority of any Governmental Body.
MATERIAL ADVERSE EFFECT. An event, violation, inaccuracy, circumstances or
other matter will be deemed to have a "Material Adverse Effect" on the Acquired
Corporations if such event, violation, inaccuracy, circumstance or other matter
would have a material adverse effect on (i) the business, condition,
capitalization, assets, liabilities, operations or financial performance of the
Acquired Corporations taken as a whole, (ii) the ability of the Company to
consummate the Merger or any of the other transactions contemplated by the
Agreement or to perform any of its obligations under the Agreement, or (iii)
Parent's ability to vote, receive dividends with respect to or otherwise
exercise ownership rights with respect to the stock of the Surviving
Corporation. An event, violation, inaccuracy, circumstance or other matter will
be deemed to have a "Material Adverse Effect" on Parent if such event,
violation, inaccuracy, circumstance or other matter would have a material
adverse effect on the business, condition, assets, liabilities, operations or
financial performance of Parent and its subsidiaries taken as a whole.
NASDAQ. "NASDAQ" shall mean the Nasdaq National Market.
PARENT COMMON STOCK. "PARENT COMMON STOCK" shall mean the Common Stock,
$.001 par value per share, of Parent.
PERSON. "PERSON" shall mean any individual, Entity or Governmental Body.
PROPRIETARY ASSET. "PROPRIETARY ASSET" shall mean any: (a) patent, patent
application, trademark (whether registered or unregistered), trademark
application, trade name, fictitious business name, service mark (whether
registered or unregistered), service mark application, copyright (whether
registered or unregistered), copyright application, maskwork, maskwork
application, trade secret, know-how, customer list, franchise, system, computer
software, computer program (in source and executable form), algorithm,
invention, design, blueprint, engineering drawing, proprietary product,
technology, proprietary right or other intellectual property right or intangible
asset in any jurisdiction in the world; or (b) right to use or exploit any of
the foregoing in any jurisdiction in the world.
A-A-2
<PAGE>
REPRESENTATIVES. "REPRESENTATIVES" shall mean officers, directors,
employees, agents, attorneys, accountants, advisors and representatives.
SEC. "SEC" shall mean the United States Securities and Exchange Commission.
SECURITIES ACT. "SECURITIES ACT" shall mean the Securities Act of 1933, as
amended.
SUBSIDIARY. An entity shall be deemed to be a "Subsidiary" of another Person
if such Person directly or in directly owns, beneficially or of record, an
amount of voting securities of other interests in such Entity that is sufficient
to enable such Person to elect at leased a majority of the members of such
Entity's board of directors or other governing body.
SUPERIOR OFFER. "SUPERIOR OFFER" shall mean an unsolicited, bona fide
written offer made by a third party to purchase more than 50% of the outstanding
shares of Company Common Stock on terms that the board of directors of the
Company determines, in its reasonable judgment, based upon the written advice of
its financial advisor, to be more favorable to the Company's shareholders than
the terms of the Merger; PROVIDED, HOWEVER, that any such offer shall not be
deemed to be a "Superior Offer" if any financing required to consummate the
transaction contemplated by such offer is not committed and is not likely to be
obtained by such third party on a timely basis.
TAX. "TAX" shall mean any tax (including any income tax, franchise tax,
capital gains tax, gross receipts tax, value-added tax, surtax, excise tax, AD
VALOREM tax, transfer tax, stamp tax, sales tax, use tax, property tax, business
tax, withholding tax or payroll tax), levy, assessment, tariff, duty (including
any customs duty), deficiency or fee, and any related charge or amount
(including any fine, penalty or interest), imposed, assessed or collected by or
under the authority of any Governmental Body.
TAX RETURN. "TAX RETURN" shall mean any return (including any information
return), report, statement, declaration, estimate, schedule, notice,
notification, form, election, certificate or other document or information filed
with or submitted to, or required to be filed with or submitted to, any
Governmental Body in connection with the determination, assessment, collection
or payment of any Tax or in connection with the administration, implementation
or enforcement of or compliance with any Legal Requirement relating to any Tax.
TRIGGERING EVENT. A "TRIGGERING EVENT" shall be deemed to have occurred if:
(i) the Board of Directors of the Company shall have failed to recommend, or
shall for any reason have withdrawn or shall have amended or modified in a
manner adverse to Parent its unanimous recommendation in favor of, the adoption
and approval of the Agreement or the approval of the Merger; (ii) the Company
shall have failed to include in the Joint Proxy Statement/Prospectus the
unanimous recommendation of the board of directors of the Company in favor of
the adoption and approval of the Agreement and the approval of the Merger; (iii)
the board of directors of the Company fails to reaffirm its unanimous
recommendation in favor of the adoption and approval of the Agreement and the
approval of the Merger within five (5) business days after the Parent request in
writing that such recommendation be reaffirmed; (iv) the board of directors of
the Company shall have approved, endorsed or recommended any Acquisition
Proposal; (v) the Company shall have entered into any letter of intent of
similar document or any Contract relating to any Acquisition Proposal; (vi) the
Company shall have failed to hold the Company Shareholders Meeting as promptly
as practicable and in any event within 45 days after the Form S-4 Registration
Statement is declared effective under the Securities Act; (vii) a tender or
exchange offer relating to securities of the Company shall have been commenced
and the Company shall not have sent to its securityholders, within ten (10)
business days after the commencement of such tender or exchange offer, a
statement disclosing that the Company recommends rejection of such tender or
exchange offer; (viii) an Acquisition Proposal is publicly announced, and the
Company (A) fails to issue a press release announcing its opposition to such
Acquisition Proposal within five business days after such Acquisition Proposal
is announced or (B) otherwise fails to actively oppose such Acquisition
Proposal; or (ix) the Company breaches or is deemed to have breached any of its
obligations under Section 4.3 of the Agreement.
A-A-3
<PAGE>
APPENDIX B-1
[LOGO]
September 9, 1998
Board of Directors
Integrated Systems Consulting Group, Inc.
575 E. Swedesford Road
Wayne, PA 19087
Ladies and Gentlemen:
Integrated Systems Consulting Group, Inc. (the "Company") proposes to enter
into an Agreement and Plan of Merger and Reorganization (the "Agreement") with
First Consulting Group, Inc. ("Parent") and Foxtrot Acquisition Sub, Inc., a
wholly owned subsidiary of Parent ("Merger Sub"). Pursuant to the Agreement, at
the Effective Time (as defined in the Agreement), Merger Sub shall be merged
with and into the Company (the "Merger") and each issued and outstanding share
of Common Stock, par value $.005 per share ("Company Common Stock"), of the
Company (other than Dissenting Shares (as defined in the Agreement) and shares
held by the Company, Parent or any of their respective subsidiaries) will be
converted solely into the right to receive 0.77 of one share of Common Stock,
par value $.001 per share ("Parent Common Stock"), of Parent (the "Exchange
Ratio").
You have requested our opinion as to the fairness, from a financial point of
view, of the Exchange Ratio to the holders of Company Common Stock (other than
Parent and its affiliates).
Robert W. Baird & Co. Incorporated ("Baird"), as part of its investment
banking business, is engaged in the evaluation of businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, competitive biddings, secondary distributions of listed and
unlisted securities, private placements, and valuations for estate, corporate
and other purposes.
In conducting our investigation and analysis and in arriving at our opinion
herein, we have reviewed such information and taken into account such financial
and economic factors as we have deemed relevant under the circumstances. In that
connection, we have, among other things: (i) reviewed certain internal
information, primarily financial in nature, including projections, concerning
the business and operations of the Company and Parent furnished to us for
purposes of our analysis, as well as publicly available information including
but not limited to the Company's and the Parent's recent filings with the
Securities and Exchange Commission and equity analyst research reports prepared
by various investment banking firms including Baird; (ii) reviewed the Agreement
in the form presented to the Company's Board of Directors; (iii) compared the
historical market prices and trading activity of the Company Common Stock and
Parent Common Stock with those of certain other publicly traded companies we
deemed relevant; (iv) compared the financial position and operating results of
the Company and Parent with those of other publicly traded companies we deemed
relevant; (v) compared the proposed financial terms of the Merger with the
financial terms of certain other business combinations we deemed relevant; and
(vi) reviewed certain potential pro forma effects of the Merger. We have held
discussions with members of the Company's and Parent's respective senior
managements concerning the Company's and Parent's historical and current
financial condition and operating results, as well as the future prospects of
the Company and Parent, respectively. As a part of our engagement we were
requested to and did solicit third party indications of interest in acquiring
the Company. We have also considered such other information,
B-1-1
<PAGE>
Integrated Systems Consulting Group, Inc.
September 9, 1998
Page 2
financial studies, analysis and investigations and financial, economic and
market criteria which we deemed relevant for the preparation of this opinion.
In arriving at our opinion, we have assumed and relied upon the accuracy and
completeness of all of the financial and other information that was publicly
available or provided us by or on behalf of the Company and the Parent, and have
not been engaged to independently verify any such information. We have assumed,
with your consent, (i) that all material assets and liabilities (contingent or
otherwise, known or unknown) of the Company and the Parent are as set forth in
their respective financial statements, (ii) the Merger will be accounted for
under the pooling-of-interests method and (iii) the Merger will be consummated
in accordance with the terms of the Agreement, without any amendment thereto and
without waiver by the Company or Parent of any of the conditions to their
respective obligations thereunder. At your direction, we have assumed that no
cost savings or operating synergies will result from the Merger, and have
excluded transaction costs from our financial analysis. We have also assumed
that the financial forecasts examined by us were reasonably prepared on bases
reflecting the best available estimates and good faith judgments of the
Company's and Parent's respective senior managements as to future performance of
the Company and Parent, respectively. In conducting our review, we have not
undertaken nor obtained an independent evaluation or appraisal of any of the
assets or liabilities (contingent or otherwise) of the Company and Parent nor
have we made a physical inspection of the properties or facilities of the
Company or Parent. Our opinion necessarily is based upon economic, monetary and
market conditions as they exist and can be evaluated on the date hereof, and
does not predict or take into account any changes which may occur, or
information which may become available, after the date hereof. Furthermore, we
express no opinion as to the price or trading range at which any of the
Company's or Parent's securities (including the Company Common Stock and Parent
Common Stock) will trade following the date hereof.
Our opinion has been prepared at the request and for the information of the
Board of Directors of the Company, and shall not be used for any other purpose
or disclosed to any other party without the prior written consent of Baird;
provided, however, that this letter may be reproduced in full in the Proxy
Statement/Prospectus to be provided to the Company's stockholders in connection
with the Merger. This opinion does not address the relative merits of the Merger
and any other potential transactions or business strategies considered by the
Company's Board of Directors, and does not constitute a recommendation to any
shareholder of the Company as to how any such shareholder should vote with
respect to the Merger. Baird will receive a fee for rendering this opinion. In
the past, Baird has performed investment banking services for the Company,
including acting as co-manager in the Company's 1996 public offering of the
Company's Common Stock. Additionally, in the past Baird has performed investment
banking services for Safeguard Scientifics, Inc., an affiliate of the Company,
as well as for certain other affiliates of Safeguard Scientifics, Inc., for
which Baird has received customary compensation.
In the ordinary course of our business, we may from time to time trade the
securities of the Company or Parent for our own account or the accounts of our
customers and, accordingly, may at any time hold long or short positions in such
securities.
Based upon and subject to the foregoing, we are of the opinion that, as of
the date hereof, the Exchange Ratio is fair, from a financial point of view, to
the holders of Company Common Stock (other than Parent and its affiliates).
Very truly yours,
ROBERT W. BAIRD & CO. INCORPORATED
B-1-2
<PAGE>
APPENDIX B-2
HAMBRECHT & QUIST LLC
ONE BUSH STREET
SAN FRANCISCO, CA
94104
(415) 439-3000
September 9, 1998
CONFIDENTIAL
The Board of Directors
First Consulting Group, Inc.
111 W. Ocean Boulevard, 4th Floor
Long Beach, CA 90802
Gentlemen:
You have requested our opinion as to the fairness from a financial point of
view to First Consulting Group, Inc. ("First Consulting" or the "Company") of
the Exchange Ratio (as defined below) in connection with the proposed merger of
a wholly owned subsidiary of First Consulting with and into Integrated Systems
Consulting Group, Inc. ("ISCG") (the "Proposed Transaction") under the terms of
the Agreement and Plan of Merger and Reorganization, dated as of September 9,
1998, among ISCG, First Consulting and Foxtrot Acquisition Sub, Inc. and the
related Exhibits and Schedules thereto (the "Agreement"). The Agreement
provides, among other things, that each issued and outstanding share of Common
Stock of ISCG will be converted, upon consummation of the Proposed Transaction,
into 0.77 shares of First Consulting Common Stock (the "Exchange Ratio). For
purposes of this opinion, we have assumed that the Proposed Transaction will
qualify as a tax-free reorganization under the United States Internal Revenue
Code and that the Proposed Transaction will be accounted for as a pooling-of-
interests.
Hambrecht & Quist LLC ("Hambrecht & Quist"), as part of its investment
banking services, is regularly engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, strategic transactions,
corporate restructurings, negotiated underwritings, secondary distributions of
listed and unlisted securities, private placements and valuations for corporate
and other purposes. We have acted as a financial advisor to the Board of
Directors of First Consulting in connection with the Proposed Transaction, and
we will receive a fee for our services, which include the rendering of this
opinion.
In the past, we have provided investment banking and other financial
advisory services to First Consulting and have received fees for rendering these
services. In particular, Hambrecht & Quist acted as lead underwriter of the
Company's initial public offering on February 13, 1998, and received a fee for
these
SAN FRANCISCO - NEW YORK - BOSTON - NEWPORT BEACH - SAN DIEGO - LONDON
MEMBERS NEW YORK STOCK EXCHANGE - AMERICAN STOCK EXCHANGE - PACIFIC STOCK
EXCHANGE
B-2-1
<PAGE>
The Board of Directors
First Consulting Group, Inc.
Page 2
services. In the ordinary course of business, Hambrecht & Quist acts as a market
maker and broker in the publicly traded securities of First Consulting and
receives customary compensation in connection therewith, and also provides
research coverage for First Consulting. In the ordinary course of business,
Hambrecht & Quist actively trades in the equity and derivative securities of
First Consulting for its own account and for the accounts of its customers and,
accordingly, may at any time hold a long or short position in such securities.
Hambrecht & Quist may in the future provide additional investment banking or
other financial advisory services to First Consulting.
In connection with our review of the Proposed Transaction, and in arriving
at our opinion, we have, among other things:
(i) reviewed the publicly available consolidated financial statements
First Consulting for recent years and interim periods to date and certain
other relevant financial and operating data of First Consulting made
available to us from published sources and from the internal records of
First Consulting;
(ii) reviewed certain internal financial and operating information,
including certain projections, relating to First Consulting prepared by the
management of First Consulting;
(iii) discussed the business, financial condition and prospects of First
Consulting with certain of its officers;
(iv) reviewed the publicly available consolidated financial statements
of ISCG for recent years and interim periods to date and certain other
relevant financial and operating data of ISCG made available to us from
published sources and from the internal records of ISCG;
(v) reviewed certain internal financial and operating information,
including certain projections, relating to ISCG prepared by the management
of ISCG;
(vi) discussed the business, financial condition and prospects of ISCG
with certain of its officers;
(vii) reviewed the recent reported prices and trading activity for the
Common Stocks of First Consulting and ISCG and compared such information and
certain financial information for First Consulting and ISCG with similar
information for certain other companies engaged in businesses we consider
comparable;
(viii) reviewed the financial terms, to the extent publicly available, of
certain comparable merger and acquisition transactions;
(ix) reviewed the Agreement; and
(x) performed such other analyses and examinations and considered such
other information, financial studies, analyses and investigations and
financial, economic and market data as we deemed relevant.
In rendering our opinion, we have assumed and relied upon the accuracy and
completeness of all of the information concerning First Consulting or ISCG
considered in connection with our review of the Proposed Transaction, and we
have not assumed any responsibility for independent verification of such
information. We have not undertaken any independent valuation or appraisal of
any of the assets or liabilities of First Consulting or ISCG; nor have we
conducted a physical inspection of the properties and facilities of either
company. With respect to the financial forecasts and projections made available
to us and used in our analysis, we have assumed that they reflect the best
currently available estimates and judgments of the expected future financial
performance of First Consulting and ISCG. For purposes of this
B-2-2
<PAGE>
The Board of Directors
First Consulting Group, Inc.
Page 3
Opinion, we have assumed that neither First Consulting nor ISCG is a party to
any pending transactions, including external financings, recapitalizations or
material merger discussions, other than the Proposed Transaction and those
activities undertaken in the ordinary course of conducting their respective
businesses. Our opinion is necessarily based upon market, economic, financial
and other conditions as they exist and can be evaluated as of the date of this
letter and any change in such conditions would require a reevaluation of this
opinion. Hambrecht & Quist expresses no opinion as to the price at which First
Consulting Common Stock will trade after the effective date of the Proposed
Transaction.
It is understood that his letter is for the information of the Board of
Directors in connection with their evaluation of the Proposed Transaction and
may not be used for any other purpose without our prior written consent;
provided, however, that this letter may be reproduced in full in the joint proxy
statement/ prospectus related to the Proposed Transaction. This letter does not
constitute a recommendation to any stockholder as to how such stockholder should
vote on the Proposed Transaction.
Based upon and subject to the foregoing and after considering such other
matters as we deem relevant, we are of the opinion that as of the date hereof
the Exchange Ratio is fair to the Company from a financial point of view.
Very truly yours,
HAMBRECHT & QUIST LLC
By
- --------------------------------------
David G. Golden
MANAGING DIRECTOR
B-2-3
<PAGE>
APPENDIX C-1
COMPANY VOTING AGREEMENT
THIS VOTING AGREEMENT is entered into as of September 9, 1998, by and
between FIRST CONSULTING GROUP, INC., a Delaware corporation ("PARENT"), and the
undersigned stockholder ("STOCKHOLDER").
RECITALS
WHEREAS, Stockholder is a stockholder of Integrated Systems Consulting
Group, Inc., a Pennsylvania corporation (the "COMPANY").
WHEREAS, Parent, Foxtrot Acquisition Sub, Inc., a Delaware corporation and a
wholly-owned subsidiary of Parent ("MERGER SUB"), and the Company, are entering
into an Agreement and Plan of Merger and Reorganization of even date herewith
(the "MERGER AGREEMENT") which provides (subject to the conditions set forth
therein) for the merger of Merger Sub with and into the Company (the "MERGER").
NOW, THEREFORE, in order to induce Parent and Merger Sub to enter into the
Merger Agreement and consummate the transactions contemplated thereby, and for
other valuable consideration (the receipt and sufficiency of which are hereby
acknowledged by Stockholder), Stockholder hereby covenants and agrees as
follows:
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants herein contemplated
and intending to be legally bound hereby, the parties hereto agree as follows:
1. CERTAIN DEFINITIONS.
For purposes of this Agreement:
(a) "COMPANY COMMON STOCK" shall mean the Common Stock, par value $.005
per share, of the Company.
(b) "EXPIRATION DATE" shall mean the earlier of (i) the date upon which
the Merger Agreement is validly terminated pursuant to Section 8 thereof, or
(ii) the date upon which the Merger becomes effective in accordance with the
terms and provisions of the Merger Agreement.
(c) Stockholder shall be deemed to "OWN" or to have acquired "OWNERSHIP"
of a security if Stockholder: (i) is the record owner of such security; or
(ii) is the "beneficial owner" (within the meaning of Rule 13d-3 under the
Securities Exchange Act of 1934) of such security.
(d) "PERSON" shall mean any (i) individual, (ii) corporation, limited
liability company, partnership or other entity or (iii) governmental
authority.
(e) "SUBJECT SECURITIES" shall mean: (i) all securities of the Company
(including all shares of Company Common Stock and all options, warrants and
other rights to acquire shares of Company Common Stock) Owned by Stockholder
as of the date of this Agreement; and (ii) all additional securities of the
Company (including all additional shares of Company Common Stock and all
additional options, warrants and other rights to acquire shares of Company
Common Stock) of which Stockholder acquires Ownership during the period from
the date of this Agreement through the Expiration Date.
(f) A Person shall be deemed to have a effected a "TRANSFER" of a
security if such Person directly or indirectly: (i) sells, pledges,
encumbers, grants an option with respect to, transfers or disposes of such
security or any interest in such security; or (ii) enters into an agreement
or commitment
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<PAGE>
contemplating the possible sale of, pledge of, encumbrance of, grant of an
option with respect to, transfer of or disposition of such security or any
interest therein.
2. TRANSFER OF SUBJECT SECURITIES.
2.1 TRANSFEREE OF SUBJECT SECURITIES TO BE BOUND BY THIS
AGREEMENT. Stockholder agrees that, during the period from the date of this
Agreement through the Expiration Date, Stockholder shall not cause or permit any
Transfer of any of the Subject Securities to be effected unless each Person to
which any of such Subject Securities, or any interest in any of such Subject
Securities, is or may be transferred shall have: (a) executed a counterpart of
this Agreement and a proxy in the form attached hereto as Exhibit A (with such
modifications as Parent may reasonably request); and (b) agreed to hold such
Subject Securities (or interest in such Subject Securities) subject to all of
the terms and provisions of this Agreement.
2.2 TRANSFER OF VOTING RIGHTS. Stockholder agrees that, during the period
from the date of this Agreement through the Expiration Date, Stockholder shall
ensure that: (a) none of the Subject Securities is deposited into a voting
trust; and (b) no proxy is granted, and no voting agreement or similar agreement
is entered into, with respect to any of the Subject Securities.
3. VOTING OF SHARES.
3.1 VOTING AGREEMENT. Stockholder agrees that, during the period from the
date of this Agreement through the Expiration Date:
(a) at any meeting of stockholders of the Company, however called, and
at every adjournment thereof, Stockholder shall (unless otherwise directed
in writing by Parent) cause all outstanding shares of Company Common Stock
that are Owned by Stockholder as of the record date fixed for such meeting
to be voted in favor of the approval and adoption of the Merger Agreement
and the approval of the Merger, and in favor of each of the other actions
contemplated by the Merger Agreement; and
(b) in the event written consents are solicited or otherwise sought from
stockholders of the Company with respect to the approval or adoption of the
Merger Agreement, with respect to the approval of the Merger or with respect
to any of the other actions contemplated by the Merger Agreement,
Stockholder shall (unless otherwise directed in writing by Parent) cause to
be executed, with respect to all shares of Company Common Stock that are
Owned by Stockholder as of the record date fixed for the consent to the
proposed action, a written consent or written consents to such proposed
action.
3.2 PROXY; FURTHER ASSURANCES.
(a) Contemporaneously with the execution of this Agreement: (i)
Stockholder shall deliver to Parent a proxy in the form attached to this
Agreement as Exhibit A, which shall be irrevocable to the fullest extent
permitted by law, with respect to the shares referred to therein (the
"PROXY"); and (ii) Stockholder shall cause to be delivered to Parent an
additional proxy (in the form attached hereto as Exhibit A) executed on
behalf of the record owner of any outstanding shares of Company Common Stock
that are owned beneficially (within the meaning of Rule 13d-3 under the
Securities Exchange Act of 1934), but not of record, by Stockholder.
(b) From time to time and without additional consideration, Stockholder
shall execute and deliver, or cause to be executed and delivered, such
additional transfers, assignments, endorsements, proxies, consents and other
instruments, and shall take such further actions, as Parent may request for
the purpose of carrying out and furthering the intent of this Agreement.
4. WAIVER OF DISSENTERS' RIGHTS. Stockholder hereby irrevocably and
unconditionally waives, and agrees to cause to be waived and to prevent the
exercise of, any rights of appraisal, any dissenters' rights and any similar
rights relating to the Merger or any related transaction that Stockholder or any
other
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<PAGE>
Person may have by virtue of the ownership of any outstanding shares of Company
Common Stock Owned by Stockholder.
5. NO SOLICITATION. Stockholder agrees that, during the period from the
date of this Agreement through the Expiration Date, Stockholder shall not,
directly or indirectly, and Stockholder shall ensure that his Representatives
(as defined in the Merger Agreement) do not, directly or indirectly: (i)
solicit, initiate, encourage or induce the making, submission or announcement of
any Acquisition Proposal (as defined in the Merger Agreement) or take any action
that could reasonably be expected to lead to an Acquisition Proposal; (ii)
furnish any information regarding the Company or any direct or indirect
subsidiary of the Company to any Person in connection with or in response to an
Acquisition Proposal or potential Acquisition Proposal; or (iii) engage in
discussions with any Person with respect to any Acquisition Proposal.
Stockholder shall immediately cease and discontinue, and Stockholder shall
ensure that his Representatives immediately cease and discontinue, any existing
discussions with any Person that relate to any Acquisition Proposal.
6. REPRESENTATIONS AND WARRANTIES OF STOCKHOLDER. Stockholder hereby
represents and warrants to Parent as follows:
6.1 AUTHORIZATION, ETC. Stockholder has the absolute and unrestricted
right, power, authority and capacity to execute and deliver this Agreement and
the Proxy and to perform his obligations hereunder and thereunder. This
Agreement and the Proxy have been duly executed and delivered by Stockholder and
constitute legal, valid and binding obligations of Stockholder, enforceable
against Stockholder in accordance with their terms, subject to (i) laws of
general application relating to bankruptcy, insolvency and the relief of
debtors, and (ii) rules of law governing specific performance, injunctive relief
and other equitable remedies.
6.2 NO CONFLICTS OR CONSENTS.
(a) The execution and delivery of this Agreement and the Proxy by
Stockholder do not, and the performance of this Agreement and the Proxy by
Stockholder will not: (i) conflict with or violate any law, rule,
regulation, order, decree or judgment applicable to Stockholder or by which
he or any of his properties is or may be bound or affected; or (ii) result
in or constitute (with or without notice or lapse of time) any breach of or
default under, or give to any other Person (with or without notice or lapse
of time) any right of termination, amendment, acceleration or cancellation
of, or result (with or without notice or lapse of time) in the creation of
any encumbrance or restriction on any of the Subject Securities pursuant to,
any contract to which Stockholder is a party or by which Stockholder or any
of his affiliates or properties is or may be bound or affected.
(b) The execution and delivery of this Agreement and the Proxy by
Stockholder do not, and the performance of this Agreement and the Proxy by
Stockholder will not, require any consent or approval of any Person.
6.3 TITLE TO SECURITIES. As of the date of this Agreement: (a) Stockholder
holds of record (free and clear of any encumbrances or restrictions) the number
of outstanding shares of Company Common Stock set forth under the heading
"Shares Held of Record" on the signature page hereof; (b) Stockholder holds
(free and clear of any encumbrances or restrictions) the options, warrants and
other rights to acquire shares of Company Common Stock set forth under the
heading "Options and Other Rights" on the signature page hereof; (c) Stockholder
Owns the additional securities of the Company set forth under the heading
"Additional Securities Beneficially Owned" on the signature page hereof; and (d)
Stockholder does not directly or indirectly Own any shares of capital stock or
other securities of the Company, or any option, warrant or other right to
acquire (by purchase, conversion or otherwise) any shares of capital stock or
other securities of the Company, other than the shares and options, warrants and
other rights set forth on the signature page hereof.
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<PAGE>
6.4 ACCURACY OF REPRESENTATIONS. The representations and warranties
contained in this Agreement are accurate in all respects as of the date of this
Agreement, will be accurate in all respects at all times through the Expiration
Date and will be accurate in all respects as of the date of the consummation of
the Merger as if made on that date.
7. MISCELLANEOUS.
7.1 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS. All
representations, warranties, covenants and agreements made by Stockholder in
this Agreement shall survive (i) the consummation of the Merger, (ii) any
termination of the Merger Agreement and (iii) the Expiration Date.
7.2 INDEMNIFICATION. Stockholder shall hold harmless and indemnify Parent
and Parent's affiliates from and against, and shall compensate and reimburse
Parent and Parent's affiliates for, any loss, damage, claim, liability, fee
(including attorneys' fees), demand, cost or expense (regardless of whether or
not such loss, damage, claim, liability, fee, demand, cost or expense relates to
a third-party claim) that is directly or indirectly suffered or incurred by
Parent or any of Parent's affiliates, or to which Parent or any of Parent's
affiliates otherwise becomes subject, and that arises directly or indirectly
from, or relates directly or indirectly to any inaccuracy in or breach of any
representation, warranty, covenant or obligation of Stockholder contained in
this Agreement or in the Proxy.
7.3 EXPENSES. All costs and expenses incurred in connection with the
transactions contemplated by this Agreement shall be paid by the party incurring
such costs and expenses.
7.4 NOTICES. Any notice or other communication required or permitted to be
delivered to Parent or Stockholder under this Agreement shall be in writing and
shall be deemed properly delivered, given and received when delivered (by hand,
by registered mail, by courier or express delivery service or by facsimile) to
the address or facsimile telephone number set forth beneath the name of such
party below (or to such other address or facsimile telephone number as such
party shall have specified in a written notice given to the other party):
if to Stockholder:
at the address or facsimile phone number set forth below
Stockholder's signature on the signature page hereof
WITH A COPY TO:
Saul, Ewing, Remick & Saul LLP
1055 Westlakes Drive, Suite 150
Berwyn, PA 19312
Attn: David S. Antzis
Fax:(610) 408-4401
if to Parent:
First Consulting Group, Inc.
111 W. Ocean Boulevard, 4th Floor
Long Beach, CA 90802
Attn: Luther J. Nussbaum
Facsimile: (562) 432-1932
WITH A COPY TO:
Cooley Godward LLP
Five Palo Alto Square
3000 El Camino Real
Palo Alto, CA 94306-2155
Attention: Patrick A. Pohlen
Fax: (650) 849-7400
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<PAGE>
7.5 SEVERABILITY. If any provision of this Agreement or any part of any
such provision is held under any circumstances to be invalid or unenforceable in
any jurisdiction, then (a) such provision or part thereof shall, with respect to
such circumstances and in such jurisdiction, be deemed amended to conform to
applicable laws so as to be valid and enforceable to the fullest possible
extent, (b) the invalidity or unenforceability of such provision or part thereof
under such circumstances and in such jurisdiction shall not affect the validity
or enforceability of such provision or part thereof under any other
circumstances or in any other jurisdiction, and (c) the invalidity or
unenforceability of such provision or part thereof shall not affect the validity
or enforceability of the remainder of such provision or the validity or
enforceability of any other provision of this Agreement. Each provision of this
Agreement is separable from every other provision of this Agreement, and each
part of each provision of this Agreement is separable from every other part of
such provision.
7.6 ENTIRE AGREEMENT. This Agreement, the Proxy, and any other documents
delivered by the parties in connection herewith constitute the entire agreement
between the parties with respect to the subject matter hereof and thereof and
supersede all prior agreements and understandings between the parties with
respect thereto.
7.7 ASSIGNMENT; BINDING EFFECT. Except as provided herein, neither this
Agreement nor any of the interests or obligations hereunder may be assigned or
delegated by Stockholder and any attempted or purported assignment or delegation
of any of such interests or obligations shall be void. Subject to the preceding
sentence, this Agreement shall be binding upon Stockholder and his heirs,
estate, executors, personal representatives, successors and assigns, and shall
inure to the benefit of Parent and its successors and assigns. Without limiting
any of the restrictions set forth in Section 2 or elsewhere in this Agreement,
this Agreement shall be binding upon any Person to whom any Subject Securities
are transferred. Nothing in this Agreement is intended to confer on any Person
(other than Parent and its successors and assigns) any rights or remedies of any
nature.
7.8 SPECIFIC PERFORMANCE. The parties agree that irreparable damage would
occur in the event that any of the provisions of this Agreement or the Proxy was
not performed in accordance with its specific terms or was otherwise breached.
Stockholder agrees that, in the event of any breach or threatened breach by
Stockholder of any covenant or obligation contained in this Agreement or in the
Proxy, Parent shall be entitled (in addition to any other remedy that may be
available to it, including monetary damages) to seek and obtain (a) a decree or
order of specific performance to enforce the observance and performance of such
covenant or obligation, and (b) an injunction restraining such breach or
threatened breach.
7.9 NON-EXCLUSIVITY. The rights and remedies of Parent under this
Agreement are not exclusive of or limited by any other rights or remedies which
it may have, whether at law, in equity, by contract or otherwise, all of which
shall be cumulative (and not alternative). Nothing in this Agreement shall limit
any of Stockholder's obligations, or the rights or remedies of Parent, under any
Affiliate Agreement between Parent and Stockholder; and nothing in any such
Affiliate Agreement shall limit any of Stockholder's obligations, or any of the
rights or remedies of Parent, under this Agreement.
7.10 GOVERNING LAW. This Agreement and the Proxy shall be construed in
accordance with, and governed in all respects by, the laws of the State of
Pennsylvania (without giving effect to principles of conflicts of laws).
7.11 COUNTERPARTS. This Agreement may be executed by the parties in
separate counterparts, each of which when so executed and delivered shall be an
original, but all such counterparts shall together constitute one and the same
instrument.
7.12 CAPTIONS. The captions contained in this Agreement are for
convenience of reference only, shall not be deemed to be a part of this
Agreement and shall not be referred to in connection with the construction or
interpretation of this Agreement.
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<PAGE>
7.13 ATTORNEYS' FEES. If any legal action or other legal proceeding
relating to this Agreement or the enforcement of any provision of this Agreement
is brought against Stockholder, the prevailing party shall be entitled to
recover reasonable attorneys' fees, costs and disbursements (in addition to any
other relief to which the prevailing party may be entitled).
7.14 WAIVER. No failure on the part of Parent to exercise any power,
right, privilege or remedy under this Agreement, and no delay on the part of
Parent in exercising any power, right, privilege or remedy under this Agreement,
shall operate as a waiver of such power, right, privilege or remedy; and no
single or partial exercise of any such power, right, privilege or remedy shall
preclude any other or further exercise thereof or of any other power, right,
privilege or remedy. Parent shall not be deemed to have waived any claim
available to Parent arising out of this Agreement, or any power, right,
privilege or remedy of Parent under this Agreement, unless the waiver of such
claim, power, right, privilege or remedy is expressly set forth in a written
instrument duly executed and delivered on behalf of Parent; and any such waiver
shall not be applicable or have any effect except in the specific instance in
which it is given.
[THIS SPACE INTENTIONALLY LEFT BLANK]
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<PAGE>
IN WITNESS WHEREOF, the undersigned have caused this COMPANY VOTING
AGREEMENT to be executed as of the date first written above.
FIRST CONSULTING GROUP, INC.
Signed: ______________________________
Printed Name: ________________________
Title: _______________________________
STOCKHOLDER
Signed: ______________________________
Printed Name: ________________________
Address: _____________________________
______________________________________
______________________________________
Facsimile: ___________________________
<TABLE>
<CAPTION>
ADDITIONAL SECURITIES
SHARES HELD OF RECORD OPTIONS AND OTHER RIGHTS BENEFICIALLY OWNED
- ---------------------------- ---------------------------- ----------------------------
<S> <C> <C>
</TABLE>
VOTING AGREEMENT SIGNATURE PAGE
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<PAGE>
EXHIBIT A
FORM OF IRREVOCABLE PROXY
The undersigned stockholder of INTEGRATED SYSTEMS CONSULTING GROUP, INC., a
Pennsylvania corporation (the "COMPANY"), hereby irrevocably (to the fullest
extent permitted by law) appoints and constitutes James A. Reep, Luther J.
Nussbaum and Thomas A. Reep, and First Consulting Group, Inc., a Delaware
corporation ("Parent"), and each of them, the attorneys and proxies of the
undersigned with full power of substitution and resubstitution, to the full
extent of the undersigned's rights with respect to (i) the outstanding shares of
capital stock of the Company owned of record by the undersigned as of the date
of this proxy, which shares are specified on the final page of this proxy, and
(ii) any and all other shares of capital stock of the Company which the
undersigned may acquire on or after the date hereof. (The shares of the capital
stock of the Company referred to in clauses "(i)" and "(ii)" of the immediately
preceding sentence are collectively referred to as the "SHARES.") Upon the
execution hereof, all prior proxies given by the undersigned with respect to any
of the Shares are hereby revoked, and the undersigned agrees that no subsequent
proxies will be given with respect to any of the Shares.
This proxy is irrevocable, is coupled with an interest and is granted in
connection with the Voting Agreement, dated as of the date hereof, between
Parent and the undersigned (the "VOTING AGREEMENT"), and is granted in
consideration of Parent entering into the Agreement and Plan of Merger and
Reorganization, dated as of the date hereof, among Parent, Foxtrot Acquisition
Sub, Inc. and the Company (the "MERGER AGREEMENT").
The attorneys and proxies named above will be empowered, and may exercise
this proxy, to vote the Shares at any time until the earlier to occur of the
valid termination of the Merger Agreement or the effective time of the merger
contemplated thereby (the "MERGER") at any meeting of the stockholders of the
Company, however called, or in connection with any solicitation of written
consents from stockholders of the Company, in favor of the approval and adoption
of the Merger Agreement and the approval of the Merger, and in favor of each of
the other actions contemplated by the Merger Agreement.
The undersigned may vote the Shares on all other matters.
This proxy shall be binding upon the heirs, estate, executors, personal
representatives, successors and assigns of the undersigned (including any
transferee of any of the Shares).
If any provision of this proxy or any part of any such provision is held
under any circumstances to be invalid or unenforceable in any jurisdiction, then
(a) such provision or part thereof shall, with respect to such circumstances and
in such jurisdiction, be deemed amended to conform to applicable laws so as to
be valid and enforceable to the fullest possible extent, (b) the invalidity or
unenforceability of such provision or part thereof under such circumstances and
in such jurisdiction shall not affect the validity or enforceability of such
provision or part thereof under any other circumstances or in any other
jurisdiction, and (c) the invalidity or unenforceability of such provision or
part thereof shall not affect the validity or enforceability of the remainder of
such provision or the validity or enforceability of any other provision of this
proxy. Each provision of this proxy is separable from every other provision of
this proxy, and each part of each provision of this proxy is separable from
every other part of such provision.
VOTING AGREEMENT
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<PAGE>
This proxy shall terminate upon the earlier of the valid termination of the
Merger Agreement or the effective time of the Merger.
Dated: September 9, 1998
--------------------------------------
Signed
--------------------------------------
Printed Name
Number of shares of Common Stock of
INTEGRATED SYSTEMS CONSULTING GROUP,
INC. owned of record as of the date of
this proxy:
--------------------------------------
IRREVOCABLE PROXY
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<PAGE>
APPENDIX C-2
PARENT VOTING AGREEMENT
This Voting Agreement is entered into as of September 9, 1998, by and
between INTEGRATED SYSTEMS CONSULTING GROUP, INC., a Pennsylvania corporation
("COMPANY"), FIRST CONSULTING GROUP, INC., a Delaware corporation ("PARENT"),
and the undersigned stockholder ("STOCKHOLDER").
RECITALS
WHEREAS, Stockholder is a stockholder of Parent.
WHEREAS, Parent, Foxtrot Acquisition Sub, Inc., a Delaware corporation and a
wholly-owned subsidiary of Parent ("MERGER SUB"), and Company, are entering into
an Agreement and Plan of Merger and Reorganization of even date herewith (the
"MERGER AGREEMENT") which provides (subject to the conditions set forth therein)
for the merger of Merger Sub with and into Company (the "MERGER").
NOW, THEREFORE, in order to induce Company to enter into the Merger
Agreement and consummate the transactions contemplated thereby, and for other
valuable consideration (the receipt and sufficiency of which are hereby
acknowledged by Stockholder), Stockholder hereby covenants and agrees as
follows:
AGREEMENT
The parties to this Agreement, intending to be legally bound, agree as
follows:
1. CERTAIN DEFINITIONS.
For purposes of this Agreement:
(a) "PARENT COMMON STOCK" shall mean the Common Stock, par value $.001
per share, of Parent.
(b) "EXPIRATION DATE" shall mean the earlier of (i) the date upon which
the Merger Agreement is validly terminated pursuant to Section 8 thereof, or
(ii) the date upon which the Merger becomes effective in accordance with the
terms and provisions of the Merger Agreement.
(c) Stockholder shall be deemed to "OWN" or to have acquired "OWNERSHIP"
of a security if Stockholder is the "beneficial owner" (within the meaning
of Rule 13d-3 under the Securities Exchange Act of 1934) of such security by
virtue of Stockholder, directly or indirectly, having or sharing voting
power over such security.
(d) "PERSON" shall mean any (i) individual, (ii) corporation, limited
liability company, partnership or other entity, or (iii) governmental
authority.
(e) "SUBJECT SECURITIES" shall mean: (i) all securities of Parent
(including all shares of Parent Common Stock and all options, warrants and
other rights to acquire shares of Parent Common Stock) Owned by Stockholder
as of the date of this Agreement; and (ii) all additional securities of
Parent (including all additional shares of Parent Common Stock and all
additional options, warrants and other rights to acquire shares of Parent
Common Stock) of which Stockholder acquires Ownership during the period from
the date of this Agreement through the Expiration Date.
(f) A Person shall be deemed to have a effected a "TRANSFER" of a
security if such Person directly or indirectly: (i) sells, pledges,
encumbers, grants an option with respect to, transfers or disposes of such
security or any interest in such security; or (ii) enters into an agreement
or commitment providing for the sale of, pledge of, encumbrance of, grant of
an option with respect to, transfer of or disposition of such security or
any interest therein.
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<PAGE>
2. TRANSFER OF SUBJECT SECURITIES.
2.1 TRANSFEREE OF SUBJECT SECURITIES TO BE BOUND BY THIS
AGREEMENT. Stockholder agrees that, during the period from the date of this
Agreement through the Expiration Date, Stockholder shall not cause or permit any
Transfer of any of the Subject Securities to be effected unless each Person to
which any of such Subject Securities, or any interest in any of such Subject
Securities, is or may be transferred shall have: (a) executed a counterpart of
this Agreement (with such modifications as Company may reasonably request); and
(b) agreed in writing to hold such Subject Securities (or interest in such
Subject Securities) subject to all of the terms and provisions of this
Agreement.
2.2 TRANSFER OF VOTING RIGHTS. Stockholder agrees that, during the period
from the date of this Agreement through the Expiration Date, Stockholder shall
not deposit (or permit the deposit of) any Subject Securities in a voting trust
or grant any proxy or enter into any voting agreement or similar agreement in
contravention of the obligations of Stockholder under this Agreement with
respect to any of the Subject Securities.
3. VOTING OF SHARES.
3.1 VOTING AGREEMENT. Stockholder agrees that, during the period from the
date of this Agreement through the Expiration Date:
(a) at any meeting of Stockholders of Parent, however called, and at
every adjournment thereof, Stockholder shall (unless otherwise directed in
writing by Company) cause all outstanding shares of Parent Common Stock that
are Owned by Stockholder as of the record date fixed for such meeting to be
voted in favor of the issuance of Parent Common Stock in connection with the
Merger, and in favor of each of the other actions contemplated by the Merger
Agreement; and
(b) in the event written consents are solicited or otherwise sought from
Stockholders of Parent with respect to the approval or adoption of the
Merger Agreement, with respect to the approval of the Merger or with respect
to any of the other actions contemplated by the Merger Agreement,
Stockholder shall (unless otherwise directed in writing by Company) cause to
be executed, with respect to all shares of Parent Common Stock that are
Owned by Stockholder as of the record date fixed for the consent to the
proposed action, a written consent or written consents to such proposed
action.
3.2 PROXY; FURTHER ASSURANCES.
(a) Contemporaneously with the execution of this Agreement: (i)
Stockholder shall deliver to Company a proxy in the form attached to this
Agreement as Exhibit A, which shall be irrevocable to the fullest extent
permitted by law, with respect to the shares referred to therein (the
"PROXY"); and (ii) Stockholder shall cause to be delivered to Company an
additional proxy (in the form attached hereto as Exhibit A) executed on
behalf of the record owner of any outstanding shares of Parent Common Stock
that are owned beneficially (within the meaning of Rule 13d-3 under the
Securities Exchange Act of 1934), but not of record, by Stockholder.
(b) From time to time and without additional consideration, Stockholder
shall execute and deliver, or cause to be executed and delivered, such
additional transfers, assignments, endorsements, proxies, consents and other
instruments, and shall take such further actions, as Company may request for
the purpose of carrying out and furthering the intent of this Agreement.
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<PAGE>
4. REPRESENTATIONS AND WARRANTIES OF STOCKHOLDER.
Stockholder hereby represents and warrants to Company as follows:
4.1 AUTHORIZATION, ETC. Stockholder has the absolute and unrestricted
right, power, authority and capacity to execute and deliver this Agreement and
the Proxy and to perform his obligations hereunder and thereunder. This
Agreement and the Proxy have been duly executed and delivered by Stockholder and
constitute legal, valid and binding obligations of Stockholder, enforceable
against Stockholder in accordance with their terms, subject to (i) laws of
general application relating to bankruptcy, insolvency and the relief of
debtors, and (ii) rules of law governing specific performance, injunctive relief
and other equitable remedies.
4.2 NO CONFLICTS OR CONSENTS.
(a) The execution and delivery of this Agreement and the Proxy by
Stockholder do not, and the performance of this Agreement and the Proxy by
Stockholder will not: (i) conflict with or violate any order, decree or
judgment applicable to Stockholder or by which he or any of his properties
is or may be bound or affected; or (ii) result in or constitute (with or
without notice or lapse of time) any breach of or default under, or give to
any other Person (with or without notice or lapse of time) any right of
termination, amendment, acceleration or cancellation of, or result (with or
without notice or lapse of time) in the creation of any encumbrance or
restriction on any of the Subject Securities pursuant to, any contract to
which Stockholder is a party or by which Stockholder or any of his
affiliates or properties is or may be bound or affected.
(b) The execution and delivery of this Agreement and the Proxy by
Stockholder do not, and the performance of this Agreement and the Proxy by
Stockholder will not, require any consent or approval of any Person.
4.3 TITLE TO SECURITIES. As of the date of this Agreement: (a) Stockholder
holds of record (free and clear of any encumbrances or restrictions that will
restrict or interfere in any way with the actions contemplated hereby or
Stockholder's obligations hereunder) the number of outstanding shares of Parent
Common Stock set forth under the heading "Shares Held of Record" on the
signature page hereof; (b) Stockholder holds (free and clear of any encumbrances
or restrictions that will restrict or interfere in any way with the actions
contemplated hereby or Stockholder's obligations hereunder) the options,
warrants and other rights to acquire shares of Parent Common Stock set forth
under the heading "Options and Other Rights" on the signature page hereof; (c)
Stockholder Owns the additional securities of Parent set forth under the heading
"Additional Securities Beneficially Owned" on the signature page hereof; and (d)
Stockholder does not directly or indirectly Own any shares of capital stock or
other securities of Parent, or any option, warrant or other right to acquire (by
purchase, conversion or otherwise) any shares of capital stock or other
securities of Parent, other than the shares and options, warrants and other
rights set forth on the signature page hereof.
4.4 ACCURACY OF REPRESENTATIONS. The representations and warranties
contained in this Agreement are accurate in all respects as of the date of this
Agreement, will be accurate in all respects at all times through the Expiration
Date and will be accurate in all respects as of the date of the consummation of
the Merger as if made on that date except that Stockholder's beneficial or
record ownership of securities as represented in Section 6.3 hereof may differ
as of the Expiration Date in the event of acquisitions or Transfers of
securities not prohibited by the terms of this Agreement.
5. MISCELLANEOUS.
5.1 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS. All
representations, warranties, covenants and agreements made by Stockholder in
this Agreement shall survive the Expiration Date.
C-2-3
<PAGE>
5.2 INDEMNIFICATION. Parent shall hold harmless and indemnify Company and
Company's affiliates from and against, and shall compensate and reimburse
Company and Company's affiliates for, any loss, damage, claim, liability, fee
(including reasonable attorneys' fees), demand, cost or expense (regardless of
whether or not such loss, damage, claim, liability, fee, demand, cost or expense
relates to a third-party claim) that is directly or indirectly suffered or
incurred by Company or any of Company's affiliates, or to which Company or any
of Company's affiliates otherwise becomes subject, and that arises directly or
indirectly from, or relates directly or indirectly to any inaccuracy in or
breach of any representation, warranty, covenant or obligation of Stockholder
contained in this Agreement or in the Proxy.
5.3 EXPENSES. All costs and expenses incurred in connection with the
transactions contemplated by this Agreement shall be paid by the party incurring
such costs and expenses.
5.4 NOTICES. Any notice or other communication required or permitted to be
delivered under this Agreement shall be in writing and shall be deemed properly
delivered, given and received when delivered (by hand, by registered mail, by
courier or express delivery service or by facsimile confirmation obtained) to
the address or facsimile telephone number set forth beneath the name of such
party below (or to such other address or facsimile telephone number as such
party shall have specified in a written notice given to the other party):
IF TO STOCKHOLDER:
at the address or facsimile phone number set forth below
Stockholder's signature on the signature page hereof
WITH A COPY TO:
Cooley Godward LLP
Five Palo Alto Square
3000 El Camino Real
Palo Alto, CA 94306-2155
Attention: Patrick A. Pohlen
Fax: (650) 849-7400
IF TO COMPANY:
Integrated Systems Consulting Group, Inc.
575 East Swedesford Road
Wayne, PA 19087
Attn: Thomas Olenzak
Fax: (610) 989-7050
WITH A COPY TO:
Saul, Ewing, Remick & Saul LLP
1055 Westlakes Drive, Suite 150
Berwyn, PA 19312
Attn: David S. Antzis
Fax: (610) 408-4401
5.5 SEVERABILITY. If any provision of this Agreement or any part of any
such provision is held under any circumstances to be invalid or unenforceable in
any jurisdiction, then (a) such provision or part thereof shall, with respect to
such circumstances and in such jurisdiction, be deemed amended to conform to
applicable laws so as to be valid and enforceable to the fullest possible
extent, (b) the invalidity or unenforceability of such provision or part thereof
under such circumstances and in such jurisdiction shall not affect the validity
or enforceability of such provision or part thereof under any other
circumstances or in any other jurisdiction, and (c) the invalidity or
unenforceability of such provision or part thereof shall
C-2-4
<PAGE>
not affect the validity or enforceability of the remainder of such provision or
the validity or enforceability of any other provision of this Agreement. Each
provision of this Agreement is separable from every other provision of this
Agreement, and each part of each provision of this Agreement is separable from
every other part of such provision.
5.6 ENTIRE AGREEMENT. This Agreement, the Proxy, and any other documents
delivered by the parties in connection herewith constitute the entire agreement
between the parties with respect to the subject matter hereof and thereof and
supersede all prior agreements and understandings between the parties with
respect thereto.
5.7 ASSIGNMENT; BINDING EFFECT. Except as provided herein, neither this
Agreement nor any of the interests or obligations hereunder may be assigned or
delegated by Stockholder and any attempted or purported assignment or delegation
of any of such interests or obligations shall be void. Subject to the preceding
sentence, this Agreement shall be binding upon Stockholder and his heirs,
estate, executors, personal representatives, successors and assigns, and shall
inure to the benefit of Company and its successors and assigns. This Agreement
shall be binding upon any Person to whom any Subject Securities are transferred
to the extent provided in Section 2 hereof. Nothing in this Agreement is
intended to confer on any Person (other than Company and its successors and
assigns) any rights or remedies of any nature.
5.8 SPECIFIC PERFORMANCE. The parties agree that irreparable damage would
occur in the event that any of the provisions of this Agreement or the Proxy was
not performed in accordance with its specific terms or was otherwise breached.
Stockholder agrees that, in the event of any breach or threatened breach by
Stockholder of any covenant or obligation contained in this Agreement or in the
Proxy, Company shall be entitled (in addition to any other remedy that may be
available to it, including monetary damages) to seek and obtain (a) a decree or
order of specific performance to enforce the observance and performance of such
covenant or obligation, and (b) an injunction restraining such breach or
threatened breach.
5.9 NON-EXCLUSIVITY. The rights and remedies of Company under this
Agreement are not exclusive of or limited by any other rights or remedies which
it may have, whether at law, in equity, by contract or otherwise, all of which
shall be cumulative (and not alternative). Nothing in this Agreement shall limit
any of Stockholder's obligations, or the rights or remedies of Company, under
any Affiliate Agreement between Company and Stockholder; and nothing in any such
Affiliate Agreement shall limit any of Stockholder's obligations, or any of the
rights or remedies of Company, under this Agreement.
5.10 GOVERNING LAW. This Agreement and the Proxy shall be construed in
accordance with, and governed in all respects by, the laws of the State of
California (without giving effect to principles of conflicts of laws).
5.11 COUNTERPARTS. This Agreement may be executed by the parties in
separate counterparts, each of which when so executed and delivered shall be an
original, but all such counterparts shall together constitute one and the same
instrument.
5.12 CAPTIONS. The captions contained in this Agreement are for
convenience of reference only, shall not be deemed to be a part of this
Agreement and shall not be referred to in connection with the construction or
interpretation of this Agreement.
5.13 ATTORNEYS' FEES. If any legal action or other legal proceeding
relating to this Agreement or the enforcement of any provision of this Agreement
is brought against Stockholder, the prevailing party shall be entitled to
recover reasonable attorneys' fees, costs and disbursements (in addition to any
other relief to which the prevailing party may be entitled).
5.14 WAIVER. No failure on the part of Company to exercise any power,
right, privilege or remedy under this Agreement, and no delay on the part of
Company in exercising any power, right, privilege or remedy under this
Agreement, shall operate as a waiver of such power, right, privilege or remedy;
and no single or partial exercise of any such power, right, privilege or remedy
shall preclude any other or further
C-2-5
<PAGE>
exercise thereof or of any other power, right, privilege or remedy. Company
shall not be deemed to have waived any claim available to Company arising out of
this Agreement, or any power, right, privilege or remedy of Company under this
Agreement, unless the waiver of such claim, power, right, privilege or remedy is
expressly set forth in a written instrument duly executed and delivered on
behalf of Company; and any such waiver shall not be applicable or have any
effect except in the specific instance in which it is given.
[THIS SPACE INTENTIONALLY LEFT BLANK]
C-2-6
<PAGE>
IN WITNESS WHEREOF, the undersigned have caused this PARENT VOTING AGREEMENT
to be executed as of the date first written above.
INTEGRATED SYSTEMS CONSULTING GROUP,
INC.
Signed: ______________________________
Printed Name: ________________________
Title: _______________________________
FIRST CONSULTING GROUP, INC.
Signed: ______________________________
Printed Name: ________________________
Title: _______________________________
STOCKHOLDER
Signed: ______________________________
Printed Name: ________________________
Address: _____________________________
______________________________________
______________________________________
Facsimile: ___________________________
<TABLE>
<CAPTION>
ADDITIONAL SECURITIES
SHARES HELD OF RECORD OPTIONS AND OTHER RIGHTS BENEFICIALLY OWNED
- ---------------------------- ---------------------------- ----------------------------
<S> <C> <C>
</TABLE>
C-2-7
<PAGE>
EXHIBIT A
FORM OF IRREVOCABLE PROXY
The undersigned stockholder of FIRST CONSULTING GROUP, INC. a Delaware
corporation ("PARENT"), hereby irrevocably (to the fullest extent permitted by
law) appoints and constitutes David S. Lipson, and Integrated Systems Consulting
Group, Inc., a Pennsylvania corporation (the "COMPANY"), and each of them, the
attorneys and proxies of the undersigned with full power of substitution and
resubstitution, to the full extent of the undersigned's rights with respect to
(i) the outstanding shares of capital stock of Parent owned of record by the
undersigned as of the date of this proxy, which shares are specified on the
final page of this proxy, and (ii) any and all other shares of capital stock of
Parent which the undersigned may acquire on or after the date hereof. (The
shares of the capital stock of Parent referred to in clauses "(i)" and "(ii)" of
the immediately preceding sentence are collectively referred to as the
"SHARES.") Upon the execution hereof, all prior proxies given by the undersigned
with respect to any of the Shares are hereby revoked, and the undersigned agrees
that no subsequent proxies will be given with respect to any of the Shares.
This proxy is irrevocable, is coupled with an interest and is granted in
connection with the Voting Agreement, dated as of the date hereof, between the
Company and the undersigned (the "VOTING AGREEMENT"), and is granted in
consideration of the Company entering into the Agreement and Plan of Merger and
Reorganization, dated as of the date hereof, among Parent, Foxtrot Acquisition
Sub, Inc. and the Company (the "MERGER AGREEMENT").
The attorneys and proxies named above will be empowered, and may exercise
this proxy, to vote the Shares at any time until the earlier to occur of the
valid termination of the Merger Agreement or the effective time of the merger
contemplated thereby (the "MERGER") at any meeting of the stockholders of
Parent, however called, or in connection with any solicitation of written
consents from stockholders of Parent, in favor of the approval and adoption of
the Merger Agreement and the approval of the Merger, and in favor of each of the
other actions contemplated by the Merger Agreement.
The undersigned may vote the Shares on all other matters.
This proxy shall be binding upon the heirs, estate, executors, personal
representatives, successors and assigns of the undersigned (including any
transferee of any of the Shares).
If any provision of this proxy or any part of any such provision is held
under any circumstances to be invalid or unenforceable in any jurisdiction, then
(a) such provision or part thereof shall, with respect to such circumstances and
in such jurisdiction, be deemed amended to conform to applicable laws so as to
be valid and enforceable to the fullest possible extent, (b) the invalidity or
unenforceability of such provision or part thereof under such circumstances and
in such jurisdiction shall not affect the validity or enforceability of such
provision or part thereof under any other circumstances or in any other
jurisdiction, and (c) the invalidity or unenforceability of such provision or
part thereof shall not affect the validity or enforceability of the remainder of
such provision or the validity or enforceability of any other provision of this
proxy. Each provision of this proxy is separable from every other provision of
this proxy, and each part of each provision of this proxy is separable from
every other part of such provision.
This proxy shall terminate upon the earlier of the valid termination of the
Merger Agreement or the effective time of the Merger.
Dated: September 9, 1998 _________________________________
Signed
______________________________________
Printed Name
Number of shares of Common Stock of
First Consulting Group, Inc. owned of
record as of the date of this proxy:
______________________________________
C-2-8
<PAGE>
APPENDIX D-1
COMPANY AFFILIATE AGREEMENT
THIS COMPANY AFFILIATE AGREEMENT (this "AGREEMENT") is dated as of September
9, 1998, by and between FIRST CONSULTING GROUP, INC., a Delaware corporation
("PARENT"), INTEGRATED SYSTEMS CONSULTING GROUP, INC., a Pennsylvania
corporation ("COMPANY"), and the undersigned affiliate ("AFFILIATE").
RECITALS
WHEREAS, Affiliate is a stockholder of Company.
WHEREAS, Parent, Foxtrot Acquisition Sub, Inc., a Delaware corporation and a
wholly-owned subsidiary of Parent ("MERGER SUB"), and Company have entered into
an Agreement and Plan of Merger and Reorganization dated as of September 9, 1998
(the "MERGER AGREEMENT"), providing for the merger of Merger Sub with and into
Company (the "MERGER"). The Merger Agreement contemplates that, upon
consummation of the Merger, (i) the holders of the Common Stock of Company
("COMPANY COMMON STOCK") will receive shares of Common Stock of Parent ("PARENT
COMMON STOCK") in exchange for their shares of Company Common Stock and (ii)
Company will become a wholly-owned subsidiary of Parent. It is accordingly
contemplated that Affiliate will receive shares of Parent Common Stock in the
Merger.
WHEREAS, Affiliate understands that the Parent Common Stock being issued in
the Merger will be issued pursuant to a registration statement on Form S-4 and
that Affiliate may be deemed to be an "affiliate" of Company, as the term
"affiliate" is used (i) for purposes of paragraphs (c) and (d) of Rule 145
("RULE 145") of the General Rules and Regulations of the Securities and Exchange
Commission (the "SEC") under the Securities Act of 1933, as amended (the
"SECURITIES ACT"), and (ii) in the SEC's Accounting Series Releases 130 and 135,
and, as such, Affiliate may only transfer, sell or dispose of such Parent Common
Stock in accordance with this Affiliate Agreement and Rule 145.
WHEREAS, it is a condition to the consummation of the Merger pursuant to the
Merger Agreement that the independent accounting firms that audit the annual
financial statements of Parent and Company will have delivered the written
concurrences with the conclusions of management of Parent and Company to the
effect that the Merger will be accounted for as a pooling of interests under
Accounting Principles Board Opinion No. 16.
AGREEMENT
NOW, THEREFORE, in order to induce Parent and Company to consummate the
transactions contemplated by the Merger Agreement, and for other valuable
consideration (the receipt and sufficiency of which are hereby acknowledged by
Affiliate), Affiliate hereby covenants and agrees as follows:
1. REPRESENTATIONS AND WARRANTIES. Affiliate represents and warrants to
Parent as follows:
(a) Affiliate is the holder and "beneficial owner" (as defined in Rule
13d-3 under the Securities Exchange Act of 1934, as amended) of the number
of shares of Company Common Stock set forth under Affiliate's signature
below (the "COMPANY SHARES"), and Affiliate has good and valid title to
Company Shares, free and clear of any liens, pledges, security interests,
adverse claims, equities, options, proxies, charges, encumbrances or
restrictions of any nature.
(b) Affiliate has carefully read this Agreement, and has discussed with
Affiliate's own independent counsel to the extent Affiliate felt necessary
the limitations imposed on Affiliate's ability to sell, transfer or
otherwise dispose of the shares of Parent Common Stock that Affiliate is to
receive in the Merger (the "PARENT SHARES"). Affiliate fully understands the
limitations this Agreement places upon Affiliate's ability to sell, transfer
or otherwise dispose of the Parent Shares.
D-1-1
<PAGE>
(c) Affiliate understands that the representations, warranties and
covenants set forth herein will be relied upon by Parent, Company, and their
respective affiliates, counsel and accounting firms for purposes of
determining Parent's eligibility to account for the Merger as a "pooling of
interests," and that substantial losses and damages may be incurred by these
persons if Affiliate's representations, warranties or covenants are
breached.
2. PROHIBITION AGAINST TRANSFER. In addition to the restrictions set forth
elsewhere herein, Affiliate agrees that Affiliate shall not effect any sale,
transfer or other disposition of the Parent Shares unless:
(a) such sale, transfer or other disposition is made in conformity with
the volume and other requirements of Rule 145 under the Securities Act, as
evidenced by a broker's letter and a representation letter executed by
Affiliate (reasonably satisfactory in form and content to Parent), each
stating that such requirements have been met;
(b) counsel reasonably satisfactory to Parent shall have advised Parent
in a written opinion letter (reasonably satisfactory in form and content to
Parent), upon which Parent may rely, that such sale, transfer or other
disposition will be exempt from registration under the Securities Act;
(c) such sale, transfer or other disposition is effected pursuant to an
effective registration statement under the Securities Act; or
(d) an authorized representative of the SEC shall have rendered written
advice to Affiliate to the effect that the SEC would take no action, or that
the staff of the SEC would not recommend that the SEC take action, with
respect to such proposed sale, transfer or other disposition, and a copy of
such written advice and all other related communications with the SEC shall
have been delivered to Parent.
3. STOP TRANSFER INSTRUCTIONS; LEGEND. Affiliate acknowledges and agrees
that (a) stop transfer instructions will be given to Parent's transfer agent
with respect to the Parent Shares, and (b) each certificate representing any of
such shares of Parent Common Stock or any substitutions thereof shall bear a
legend (together with any other legend or legends required by applicable state
securities laws or otherwise), stating in substance:
THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A
TRANSACTION TO WHICH RULE 145 PROMULGATED UNDER THE SECURITIES ACT
OF 1933 APPLIES. THE SHARES REPRESENTED BY THIS CERTIFICATE MAY
NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, ASSIGNED, PLEDGED
OR HYPOTHECATED EXCEPT IN ACCORDANCE WITH THE PROVISIONS OF SUCH
RULE AND IN ACCORDANCE WITH THE TERMS OF AN AGREEMENT DATED AS OF
SEPTEMBER 9, 1998, BETWEEN THE REGISTERED HOLDER FIRST CONSULTING
GROUP, INC., A COPY OF WHICH AGREEMENT IS ON FILE AT THE PRINCIPAL
OFFICES OF FIRST CONSULTING GROUP, INC.
4. COVENANTS RELATED TO POOLING OF INTERESTS. In accordance with SEC Staff
Accounting Bulletin No. 65 ("SAB 65"), during the period contemplated by SAB 65,
until the earlier of (i) Parent's public announcement of financial results
covering at least 30 days of combined operations of Parent and Company or (ii)
the Merger Agreement is terminated in accordance with its terms, Affiliate will
not sell, exchange, transfer, pledge, distribute, or otherwise dispose of or
grant any option, establish any "short" or put-equivalent position with respect
to or enter into any similar transaction (through derivatives or otherwise)
intended or having the effect, directly or indirectly, to reduce its risk
relative to: (i) any shares of Company Common Stock, except pursuant to and upon
the consummation of the Merger; or (ii) any shares of Parent Common Stock
received by Affiliate in the Merger or any shares of Parent Common Stock
received by Affiliate upon exercise of options assumed by Parent in connection
with the Merger. Parent may, at its discretion, cause a restrictive legend
covering the restrictions referred to in this Section 4
D-1-2
<PAGE>
to be placed on Parent Common Stock certificates issued to Affiliate in the
Merger and place a stock transfer notice consistent with the restrictions
referred to in this Section 4 with its transfer agent with respect to such
certificates, provided such restrictive legend shall be removed and/or notice
shall be countermanded promptly upon expiration of the necessity therefor at the
request of Affiliate.
5. PERMITTED TRANSFERS. Notwithstanding anything to the contrary contained
in this Agreement, Affiliate (i) may transfer Affiliate's PRO RATA portion (of
the total number of shares available under the "de minimis" exception referred
to in this clause (i) to all affiliates of Parent and Company) of the "de
minimis" number of shares of Company Common Stock and Parent Common Stock
available for sale in accordance with SEC Staff Accounting Bulletin No. 76 (the
"DE MINIMIS POOL") contingent upon confirmation and approval by legal counsel
for Company and independent auditors to Company and Parent that such transfer
qualifies as within Affiliate's pro rata portion of the De Minimis Pool and does
not otherwise adversely affect the Parent's ability to account for the Merger as
a "pooling of interests" (ii) may (with the written consent of Parent, not to be
unreasonably withheld): (A) transfer shares of Company Common Stock or Parent
Common Stock to Company in payment of the exercise price of options to purchase
Company Common Stock; (B) transfer shares of Parent Common Stock in payment of
the exercise price of options to purchase Parent Common Stock; (C) transfer
shares of Company Common Stock or Parent Common Stock to any organization
qualified under Section 501(c)(3) of the Internal Revenue Code of 1986, as
amended, so long as such organization has traditionally been supported by
contributions from the general public (as opposed to being supported largely by
a specific donor); and (D) transfer shares of Company Common Stock or shares of
Parent Common Stock to a trust established for the benefit of Affiliate and/or
for the benefit of one or more members of Affiliate's family, or make a bona
fide gift of shares of Common Stock of Company or shares of Parent Common Stock
to one or more members of Affiliate's family, provided that in the case of a
transfer or gift pursuant to this clause (C) or (D), a transferee of such shares
agrees to be bound by the limitations set forth in this Agreement.
6. SPECIFIC PERFORMANCE. The parties agree that irreparable damage would
occur in the event that any of the provisions of this Agreement was not
performed in accordance with its specific terms or was otherwise breached.
Affiliate agrees that, in the event of any breach or threatened breach by
Affiliate of any covenant or obligation contained in this Agreement, each of
Parent and Company shall be entitled (in addition to any other remedy that may
be available to it, including monetary damages) to seek and obtain (a) a decree
or order of specific performance to enforce the observance and performance of
such covenant or obligation, and (b) an injunction restraining such breach or
threatened breach.
7. INDEPENDENCE OF OBLIGATIONS. The covenants and obligations of Affiliate
set forth in this Affiliate Agreement shall be construed as independent of any
other agreement or arrangement between Affiliate, on the one hand, and Company
or Parent, on the other. The existence of any claim or cause of action by
Affiliate against Company or Parent shall not constitute a defense to the
enforcement of any of such covenants or obligations against Affiliate.
8. NOTICES. Any notice or other communication required or permitted to be
delivered under this Agreement shall be in writing and shall be deemed properly
delivered, given and received when delivered (by hand, by registered mail, by
courier or express delivery service or by facsimile confirmation) to the address
or facsimile telephone number set forth beneath the name of such party below (or
to such other address or facsimile telephone number as such party shall have
specified in a written notice given to the other party):
IF TO PARENT:
First Consulting Group, Inc.
111 W. Ocean Boulevard- 4th Floor
Long Beach, CA 90802
Attn: Luther J. Nussbaum
Fax: (562) 432-1932
D-1-3
<PAGE>
WITH A COPY TO:
Cooley Godward LLP
Five Palo Alto Square
3000 El Camino Real
Palo Alto, CA 94306
Attn: Patrick A. Pohlen
Fax: (650) 849-7400
IF TO COMPANY:
Integrated Systems Consulting Group, Inc.
575 East Swedesford Road
Wayne, PA 19087
Attn: Thomas Olenzak
Fax: (610) 989-7050
WITH A COPY TO:
Saul, Ewing, Remick & Saul LLP
1055 Westlakes Drive, Suite 150
Berwyn, PA 19312
Attn: David S. Antzis
Fax: (610) 408-4401
IF TO AFFILIATE:
at the address or facsimile phone number set forth below
Affiliate's signature on the signature page hereof.
WITH A COPY TO:
Saul, Ewing, Remick & Saul LLP
1055 Westlakes Drive, Suite 150
Berwyn, PA 19312
Attn: David S. Antzis
Fax: (610) 408-4401
9. SEVERABILITY. If any provision of this Agreement or any part of any
such provision is held under any circumstances to be invalid or unenforceable in
any jurisdiction, then (a) such provision or part thereof shall, with respect to
such circumstances and in such jurisdiction, be deemed amended to conform to
applicable laws so as to be valid and enforceable to the fullest possible
extent, (b) the invalidity or unenforceability of such provision or part thereof
under such circumstances and in such jurisdiction shall not affect the validity
or enforceability of such provision or part thereof under any other
circumstances or in any other jurisdiction, and (c) the invalidity or
unenforceability of such provision or part thereof shall not affect the validity
or enforceability of the remainder of such provision or the validity or
enforceability of any other provision of this Agreement. Each provision of this
Agreement is separable from every other provision of this Agreement, and each
part of each provision of this Agreement is separable from every other part of
such provision.
10. GOVERNING LAW. This Agreement shall be construed in accordance with,
and governed in all respects by, the laws of the State of California (without
giving effect to principles of conflicts of laws).
11. WAIVER. No failure on the part of Parent or Company to exercise any
power, right, privilege or remedy under this Agreement, and no delay on the part
of Parent or Company in exercising any power, right, privilege or remedy under
this Agreement, shall operate as a waiver of such power, right, privilege or
remedy; and no single or partial exercise of any such power, right, privilege or
remedy shall preclude any
D-1-4
<PAGE>
other or further exercise thereof or of any other power, right, privilege or
remedy. Neither Parent or Company shall be deemed to have waived any claim
arising out of this Agreement, or any power, right, privilege or remedy under
this Agreement, unless the waiver of such claim, power, right, privilege or
remedy is expressly set forth in a written instrument duly executed and
delivered on behalf of the party deemed to be charged; and any such waiver shall
not be applicable or have any effect except in the specific instance in which it
is given.
12. CAPTIONS. The captions contained in this Agreement are for convenience
of reference only, shall not be deemed to be a part of this Agreement and shall
not be referred to in connection with the construction or interpretation of this
Agreement.
13. FURTHER ASSURANCES. Affiliate shall execute and/or cause to be
delivered to Parent or Company such instruments and other documents and shall
take such other actions as Parent or Company may reasonably request to
effectuate the intent and purposes of this Agreement.
14. ENTIRE AGREEMENT. This Agreement, the Merger Agreement and any Voting
Agreement or Noncompetition Agreement between Affiliate and Parent or
Irrevocable Proxy executed by Affiliate in favor of Parent constitute the entire
agreement between the parties with respect to the subject matter hereof and
thereof and supersede all prior agreements and understandings between the
parties with respect thereto.
15. NON-EXCLUSIVITY. The rights and remedies of Parent and Company
hereunder are not exclusive of or limited by any other rights or remedies which
Parent may have, whether at law, in equity, by contract or otherwise, all of
which shall be cumulative (and not alternative). Nothing in this Agreement shall
limit any of Affiliate's obligations, or the rights or remedies of Parent or
Company, under any Voting Agreement (including any Irrevocable Proxy contained
therein) or Noncompetition Agreement between Parent and Affiliate; and nothing
in any such Voting Agreement (including any Irrevocable Proxy) or Noncompetition
Agreement shall limit any of Affiliate's obligations, or any of the rights or
remedies of Parent, under this Agreement.
16. AMENDMENTS. This Agreement may not be amended, modified, altered, or
supplemented other than by means of a written instrument duly executed and
delivered on behalf of Parent, Company and Affiliate.
17. BINDING NATURE. This Agreement will be binding upon Affiliate and
Affiliate's representatives, executors, administrators, estate, heirs,
successors and assigns, and shall inure to the benefit of Company, Parent and
their respective successors and assigns.
18. ATTORNEYS' FEES AND EXPENSES. If any legal action or other legal
proceeding relating to the enforcement of any provision of this Agreement is
brought against Affiliate, the prevailing party shall be entitled to recover
reasonable attorneys' fees, costs and disbursements (in addition to any other
relief to which the prevailing party may be entitled).
19. ASSIGNMENT. This Agreement and all obligations of Affiliate hereunder
are personal to Affiliate and may not be transferred or delegated by Affiliate
at any time. Company or Parent may freely assign any or all of its rights under
this Affiliate Agreement, in whole or in part, to any other person or entity
without obtaining the consent or approval of Affiliate.
20. SURVIVAL. Each of the representations, warranties, covenants and
obligations contained in this Agreement shall survive the consummation of the
Merger.
D-1-5
<PAGE>
The undersigned have executed this Agreement as of the date first set forth
above.
<TABLE>
<S> <C>
FIRST CONSULTING GROUP, INC.
By: ------------------------------------
Printed Name: --------------------------
Title: ---------------------------------
INTEGRATED SYSTEMS CONSULTING GROUP, INC.
By: ------------------------------------
Printed Name: --------------------------
Title: ---------------------------------
AFFILIATE:
By: ------------------------------------
Printed Name: --------------------------
Address:
---------------------------------------
-----------------------------------------
-----------------------------------------
Facsimile:
--------------------------------------
INTEGRATED SYSTEMS CONSULTING GROUP, INC.
STOCK BENEFICIALLY OWNED BY AFFILIATE:
----------------------------------------- shares
of Common Stock
----------------------------------------- shares
of Common Stock issuable upon exercise of
outstanding options
</TABLE>
AFFILIATE AGREEMENT SIGNATURE PAGE
D-1-6
<PAGE>
APPENDIX D-2
PARENT AFFILIATE AGREEMENT
THIS PARENT AFFILIATE AGREEMENT (this "AGREEMENT") is dated as of September
9, 1998, by and between FIRST CONSULTING GROUP, INC., a Delaware corporation
("PARENT"), INTEGRATED SYSTEMS CONSULTING GROUP, INC., a Pennsylvania
corporation (the "COMPANY"), and the undersigned affiliate of Parent
("AFFILIATE").
RECITALS
WHEREAS, Affiliate is a stockholder of Parent.
WHEREAS, Parent, Foxtrot Acquisition Sub, Inc., a Delaware corporation and a
wholly-owned subsidiary of Parent ("MERGER SUB"), and the Company have entered
into an Agreement and Plan of Merger and Reorganization dated as of September 9,
1998 (the "MERGER AGREEMENT"), providing for the merger of Merger Sub with and
into the Company (the "MERGER"). The Merger Agreement contemplates that, upon
consummation of the Merger, (i) the holders of the Common Stock of the Company
("COMPANY COMMON STOCK") will receive shares of Common Stock of Parent ("PARENT
COMMON STOCK") in exchange for their shares of Company Common Stock and (ii) the
Company will become a wholly-owned subsidiary of Parent.
WHEREAS, pursuant to the Merger Agreement it is a condition to consummation
of the Merger that Parent register shares of Parent Common Stock issued to
certain stockholders of the Company in connection with the Merger pursuant to
the terms of a Registration Rights Agreement in the form of Exhibit I to the
Merger Agreement.
WHEREAS, it is a condition to the consummation of the Merger pursuant to the
Merger Agreement that the independent accounting firms that audit the annual
financial statements of Parent and the Company will have delivered the written
concurrences with the conclusions of management of Parent and the Company to the
effect that the Merger will be accounted for as a pooling of interests under
Accounting Principles Board Opinion No. 16.
AGREEMENT
NOW, THEREFORE, in order to induce Parent and the Company to consummate the
transactions contemplated by the Merger Agreement, and for other valuable
consideration (the receipt and sufficiency of which are hereby acknowledged by
Affiliate), Affiliate hereby covenants and agrees as follows:
1. REPRESENTATIONS AND WARRANTIES. Affiliate represents and warrants to
Parent as follows:
(a) Affiliate is the holder and "beneficial owner" (as defined in Rule
13d-3 under the Securities Exchange Act of 1934, as amended) of the number
of shares of the Parent Common Stock set forth under Affiliate's signature
below (the "PARENT SHARES"), and Affiliate has good and valid title to the
Parent Shares, free and clear of any liens, pledges, security interests,
adverse claims, equities, options, proxies, charges, encumbrances or
restrictions of any nature.
(b) Affiliate has carefully read this Agreement, and has discussed with
Affiliate's own independent counsel to the extent Affiliate felt necessary
the limitations imposed on Affiliate's ability to sell, transfer or
otherwise dispose of the shares of Parent Common Stock. Affiliate fully
understands the limitations this Agreement places upon Affiliate's ability
to sell, transfer or otherwise dispose of the Parent Shares.
(c) Affiliate understands that the representations, warranties and
covenants set forth herein will be relied upon by Parent, the Company, and
their respective affiliates, counsel and accounting firms for purposes of
determining Parent's eligibility to account for the Merger as a "pooling of
interests,"
EXECUTION COPY
D-2-1
<PAGE>
and that substantial losses and damages may be incurred by these persons if
Affiliate's representations, warranties or covenants are breached.
2. COVENANTS RELATED TO POOLING OF INTERESTS. In accordance with SEC Staff
Accounting Bulletin No. 65 ("SAB 65"), during the period contemplated by SAB 65,
until the earlier of (i) Parent's public announcement of financial results
covering at least thirty (30) days of combined operations of Parent and the
Company or (ii) the Merger Agreement is terminated in accordance with its terms,
Affiliate will not sell, exchange, transfer, pledge, distribute, or otherwise
dispose of or grant any option, establish any "short" or put-equivalent position
with respect to or enter into any similar transaction (through derivatives or
otherwise) intended or having the effect, directly or indirectly, to reduce its
risk relative to any Parent shares. Parent may, at its discretion, place a stock
transfer notice consistent with the restrictions referred to in this Section 2
with its transfer agent with respect to such certificates, provided such
restrictive legend shall be removed and/or notice shall be countermanded
promptly upon expiration of the necessity therefor at the request of Affiliate.
3. PERMITTED TRANSFERS. Notwithstanding anything to the contrary contained
in this Agreement, Affiliate may (i) transfer a "de minimis" amount of Parent
Common Stock as contemplated by SEC Staff Accounting Bulletin No. 76 contingent
upon consultation with legal counsel for Parent as to whether such transfer
qualifies as "de minimis" and (ii) may (with the written consent of Parent, not
to be unreasonably withheld): (A) transfer shares of Parent Common Stock in
payment of the exercise price of options to purchase Parent Common Stock; (B)
transfer shares of Parent Common Stock to any organization qualified under
Section 501(c)(3) of the Internal Revenue Code of 1986, as amended, so long as
such organization has traditionally been supported by contributions from the
general public (as opposed to being supported largely by a specific donor); and
(C) transfer shares of Parent Common Stock to a trust established for the
benefit of Affiliate and/or for the benefit of one or more members of
Affiliate's family, or make a bona fide gift of Parent Common Stock to one or
more members of Affiliate's family, provided that in the case of a transfer or
gift pursuant to this clause (B) or (C), a transferee of such shares agrees to
be bound by the limitations set forth in this Agreement.
4. SPECIFIC PERFORMANCE. The parties agree that irreparable damage would
occur in the event that any of the provisions of this Agreement was not
performed in accordance with its specific terms or was otherwise breached.
Affiliate agrees that, in the event of any breach or threatened breach by
Affiliate of any covenant or obligation contained in this Agreement, Parent
shall be entitled (in addition to any other remedy that may be available to it,
including monetary damages) to seek and obtain (a) a decree or order of specific
performance to enforce the observance and performance of such covenant or
obligation, and (b) an injunction restraining such breach or threatened breach.
5. INDEPENDENCE OF OBLIGATIONS. The covenants and obligations of Affiliate
set forth in this Affiliate Agreement shall be construed as independent of any
other agreement or arrangement between Affiliate, on the one hand, and Parent,
on the other. The existence of any claim or cause of action by Affiliate against
Parent shall not constitute a defense to the enforcement of any of such
covenants or obligations against Affiliate.
6. NOTICES. Any notice or other communication required or permitted to be
delivered under this Agreement shall be in writing and shall be deemed properly
delivered, given and received when delivered (by hand, by registered mail, by
courier or express delivery service or by facsimile confirmation) to the address
or facsimile telephone number set forth beneath the name of such party below (or
to such other
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<PAGE>
address or facsimile telephone number as such party shall have specified in a
written notice given to the other party):
<TABLE>
<S> <C>
IF TO PARENT: FIRST CONSULTING GROUP, INC.
111 W. Ocean Boulevard--4(th) Floor
Long Beach, CA 90802
Attn: Luther J. Nussbaum
Fax: (562) 432-1932
WITH A COPY COOLEY GODWARD LLP
TO: Five Palo Alto Square
3000 El Camino Real
Palo Alto, CA 94306
Attn: Patrick A. Pohlen
Fax: (650) 849-7400
IF TO at the address or facsimile phone number set forth
AFFILIATE: below Affiliate's signature on the signature page
hereof.
</TABLE>
7. SEVERABILITY. If any provision of this Agreement or any part of any
such provision is held under any circumstances to be invalid or unenforceable in
any jurisdiction, then (a) such provision or part thereof shall, with respect to
such circumstances and in such jurisdiction, be deemed amended to conform to
applicable laws so as to be valid and enforceable to the fullest possible
extent, (b) the invalidity or unenforceability of such provision or part thereof
under such circumstances and in such jurisdiction shall not affect the validity
or enforceability of such provision or part thereof under any other
circumstances or in any other jurisdiction, and (c) the invalidity or
unenforceability of such provision or part thereof shall not affect the validity
or enforceability of the remainder of such provision or the validity or
enforceability of any other provision of this Agreement. Each provision of this
Agreement is separable from every other provision of this Agreement, and each
part of each provision of this Agreement is separable from every other part of
such provision.
8. GOVERNING LAW. This Agreement shall be construed in accordance with,
and governed in all respects by, the laws of the State of California (without
giving effect to principles of conflicts of laws).
9. WAIVER. No failure on the part of Parent to exercise any power, right,
privilege or remedy under this Agreement, and no delay on the part of Parent in
exercising any power, right, privilege or remedy under this Agreement, shall
operate as a waiver of such power, right, privilege or remedy; and no single or
partial exercise of any such power, right, privilege or remedy shall preclude
any other or further exercise thereof or of any other power, right, privilege or
remedy. Parent shall not be deemed to have waived any claim arising out of this
Agreement, or any power, right, privilege or remedy under this Agreement, unless
the waiver of such claim, power, right, privilege or remedy is expressly set
forth in a written instrument duly executed and delivered on behalf of Parent;
and any such waiver shall not be applicable or have any effect except in the
specific instance in which it is given.
10. CAPTIONS. The captions contained in this Agreement are for convenience
of reference only, shall not be deemed to be a part of this Agreement and shall
not be referred to in connection with the construction or interpretation of this
Agreement.
11. FURTHER ASSURANCES. Affiliate shall execute and/or cause to be
delivered to Parent such instruments and other documents and shall take such
other actions as Parent may reasonably request to effectuate the intent and
purposes of this Agreement.
12. ENTIRE AGREEMENT. This Agreement, constitutes the entire agreement
between the parties with respect to the subject matter hereof and thereof and
supersede all prior agreements and understandings between the parties with
respect thereto.
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<PAGE>
13. NON-EXCLUSIVITY. The rights and remedies of Parent hereunder are not
exclusive of or limited by any other rights or remedies which Parent may have,
whether at law, in equity, by contract or otherwise, all of which shall be
cumulative (and not alternative).
14. AMENDMENTS. This Agreement may not be amended, modified, altered, or
supplemented other than by means of a written instrument duly executed and
delivered on behalf of Parent and Affiliate.
15. BINDING NATURE. This Agreement will be binding upon Affiliate and
Affiliate's representatives, executors, administrators, estate, heirs,
successors and assigns, and shall inure to the benefit of Parent and its
successors and assigns.
16. ATTORNEYS' FEES AND EXPENSES. If any legal action or other legal
proceeding relating to the enforcement of any provision of this Agreement is
brought against Affiliate, the prevailing party shall be entitled to recover
reasonable attorneys' fees, costs and disbursements (in addition to any other
relief to which the prevailing party may be entitled).
17. ASSIGNMENT. This Agreement and all obligations of Affiliate hereunder
are personal to Affiliate and may not be transferred or delegated by Affiliate
at any time. Parent may freely assign any or all of its rights under this
Affiliate Agreement in whole or in part, to any other person or entity without
obtaining the consent or approval of Affiliate.
18. SURVIVAL. Each of the representations, warranties, covenants and
obligations contained in this Agreement shall survive the consummation of the
Merger.
[THIS SPACE INTENTIONALLY LEFT BLANK]
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<PAGE>
The undersigned have executed this Agreement as of the date first set forth
above.
<TABLE>
<S> <C>
FIRST CONSULTING GROUP, INC.
By: ------------------------------------
Printed Name: --------------------------
Title: ---------------------------------
INTEGRATED SYSTEMS CONSULTING GROUP, INC.
By: ------------------------------------
Printed Name: --------------------------
Title: ---------------------------------
AFFILIATE:
By: ------------------------------------
Printed Name: --------------------------
Address:
---------------------------------------
-----------------------------------------
-----------------------------------------
Facsimile:
--------------------------------------
FIRST CONSULTING GROUP, INC., Stock
Beneficially owned by Affiliate:
----------------------------------------- shares
of Common Stock
----------------------------------------- shares
of Common Stock issuable upon exercise of
outstanding options
</TABLE>
PARENT AFFILIATE AGREEMENT SIGNATURE PAGE
D-2-5
<PAGE>
APPENDIX E
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made and entered
into as of , 1998, by and among FIRST CONSULTING GROUP, INC., a
Delaware corporation ("PARENT"), and those persons listed on Annex A hereto
(each individually a "HOLDER" and collectively, the "HOLDERS").
RECITALS
WHEREAS, each Holder is a shareholder of Integrated Systems Consulting
Group, Inc., a Pennsylvania corporation (the "Company").
WHEREAS, Parent, Foxtrot Acquisition Sub, Inc., a Delaware corporation and
wholly owned subsidiary of Parent ("MERGER SUB"), and the Company entered into
an Agreement and Plan of Merger and Reorganization dated as of September 9, 1998
(the "REORGANIZATION AGREEMENT") which provides (subject to the conditions set
forth therein) for the merger of Merger Sub with and into the Company (the
"MERGER").
WHEREAS, it is a condition precedent to the closing under the Reorganization
Agreement that the parties hereto enter into this Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
covenants and agreements herein contained, the parties hereto agree as follows:
1. DEFINITIONS. Terms defined in the Reorganization Agreement and not
otherwise defined herein are used herein as so defined.
(a) "AFFILIATE" shall mean any person directly or indirectly controlling,
controlled by or under common control with such other person.
(b) "CLOSING DATE" shall mean the closing date specified in the
Reorganization Agreement.
(c) "COMMISSION" shall mean the Securities and Exchange Commission, or, if
at any time after the execution of this Agreement such Commission is not
existing and performing the duties now assigned to it under the Exchange Act or
the Securities Act, whichever is the relevant statute for the particular
purpose, then "COMMISSION" shall mean the body performing such duties at such
time.
(d) "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, or any
successor thereto, and the rules and regulations promulgated thereunder, all as
the same shall be amended from time to time.
(e) "MERGER" shall mean the merger contemplated by the Reorganization
Agreement and as defined in the Reorganization Agreement.
(f) "PARENT COMMON STOCK" shall mean the Common Stock, par value $.001 per
share, of Parent.
(g) "PERMITTED TRANSFEREE" means (i) the spouse, child or lineal descendant
of a Holder, (ii) any executor, administrator, trustee or beneficiary of a
Holder under his or her will or other instrument taking effect at death or under
applicable laws of inheritance, succession, descent and distribution, (iii) any
trustee of a trust, the sole beneficiary or beneficiaries of which are such
Holder or any person described in (i) or (ii) above.
(h) "PERSON" shall mean an individual, corporation, association,
partnership, joint venture, trust, unincorporated organization, government or
political subdivision thereof or governmental agency.
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(i) "REGISTER," "REGISTERED" and "REGISTRATION" refer to a registration
effected by preparing and filing a registration statement or similar document in
compliance with the Securities Act, and the automatic effectiveness or the
declaration or ordering of effectiveness of such registration statement or
document.
(j) "REGISTRABLE SECURITIES" means (i) the shares of Parent Common Stock
issued pursuant to the Reorganization Agreement and held continuously from the
Closing Date by the Holders, and (ii) the shares of Parent Common Stock held by
the Other Holders, except as otherwise provided herein.
(k) "SECURITIES ACT" shall mean the Securities Act of 1933, or any successor
thereto, and the rules, regulations, and forms promulgated thereunder, all as
the same shall be amended from time to time.
2. REGISTRATION RIGHTS.
2.1 DEMAND REGISTRATION.
(a) Subject to the conditions of this Section 2.1, if Parent shall receive a
written request from the Holders of at least fifty percent (50%) of the
Registrable Securities then outstanding and owned by the Holders (the
"INITIATING HOLDERS") that Parent file a registration statement under the
Securities Act covering the registration of any amount of Registrable Securities
then outstanding (a "QUALIFIED PUBLIC OFFERING"), then Parent shall, within
fifteen (15) days of the receipt thereof, give written notice of such request to
all Holders, and to certain other holders of Parent Common Stock determined by
Parent ("OTHER HOLDERS"), and subject to the limitations of this Section 2.1,
use commercially reasonable efforts to file a registration statement, as soon as
practicable but in no event later than ninety (90) days after the date of such
written request, registering under the Securities Act all Registrable Securities
that the Holders and Other Holders request to be registered.
(b) If the Initiating Holders intend to distribute the Registrable
Securities covered by their request by means of an underwriting, they shall so
advise Parent as a part of their request made pursuant to this Section 2.1 and
Parent shall include such information in the written notice referred to in
Section 2.1(a). In such event, the right of any Holder or any Other Holder to
include its Registrable Securities in such registration shall be conditioned
upon such Holder's and Other Holder's participation in such underwriting and the
inclusion of such Holder's and such Other Holder's Registrable Securities in the
underwriting to the extent provided herein. All Holders and Other Holders
proposing to distribute their securities through such underwriting shall enter
into an underwriting agreement in customary form with the underwriter or
underwriters mutually selected for such underwriting by Parent and a majority in
interest of the Initiating Holders. Notwithstanding any other provision of this
Section 2.1, if the underwriter advises Parent that marketing factors require a
limitation of the number of securities to be underwritten (including Registrable
Securities) or restricts the underwriter's ability to conduct such offering then
Parent shall so advise all Holders and all Other Holders of Registrable
Securities which would otherwise be underwritten pursuant hereto, and the number
of shares that may be included in the underwriting shall be allocated to the
Holders and the Other Holders of Registrable Securities on a PRO RATA basis
based on the number of Registrable Securities held by all such Holders
(including the Initiating Holders) and the Other Holders; PROVIDED, HOWEVER,
that the number of Registrable Securities held by Other Holders to be included
in such underwriting and registration shall not exceed thirty-five percent (35%)
of the total number of shares of Registrable Securities proposed to be
distributed by means of the proposed underwriting; and, PROVIDED, FURTHER, that
the number of Registrable Securities to be allocated to the Holders shall not be
less than 2,000,000 shares of Parent Common Stock unless the number of
Registrable Securities to be included in the proposed underwriting is less than
2,000,000 shares of Parent Common Stock, in which case the entire amount of
Registrable Securities to be included in the proposed underwriting shall be
allocated to the Holders. Any Registrable Securities excluded or withdrawn from
such underwriting shall be withdrawn from the registration.
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<PAGE>
(C) Parent shall not be required to file with the Commission a registration
statement or effect a registration pursuant to this Section 2.1:
(i) during the period contemplated by Commission Staff Accounting
Bulletin No. 65 until Parent's public announcement of financial results
covering at least thirty (30) days of combined operations of Parent and the
Company;
(ii) after the date which is eighteen (18) months after the date of this
Agreement;
(iii) after Parent has effected one (1) registration pursuant to this
Section 2.1, and such registration has been declared or ordered effective;
or
(iv) during any period starting with the date of filing of, and ending
on the date one hundred eighty (180) days following, the effective date of a
registration statement (other than registration statements relating to
employee benefit plans) filed by the Company with the Commission; PROVIDED,
HOWEVER, that Parent agrees that it will note file a registration statement
with the Commission until 90 days after the end of the period described in
clause (i) above.
2.2 PIGGYBACK REGISTRATIONS.
(a) Parent shall notify all Holders and Other Holders of Registrable
Securities in writing at least fifteen (15) days prior to the filing of any
registration statement under the Securities Act for purposes of distributing
securities of Parent by means of an underwritten public offering and will afford
each such Holder and Other Holder an opportunity to include in such registration
statement all or part of such Registrable Securities held by such Holder or
Other Holder. Each Holder and Other Holder desiring to include in any such
registration statement all or any part of the Registrable Securities held by it
shall, within fifteen (15) days after the above-described notice from Parent, so
notify Parent in writing. The right of any such Holder or Other Holder to be
included in a registration pursuant to this Section 2.2 shall be conditioned
upon such Holder's or Other Holder's participation in such underwriting and the
inclusion of such Holder's or Other Holder's Registrable Securities in the
underwriting to the extent provided herein. All Holders and Other Holders
proposing to distribute their Registrable Securities through such underwriting
shall enter into an underwriting agreement in customary form with the
underwriter or underwriters selected for such underwriting by Parent.
Notwithstanding any other provision of this Agreement, if the underwriter
determines in good faith that marketing factors require a limitation of the
number of shares to be underwritten, the number of shares that may be included
in the underwriting shall be allocated: first, to Parent; and second, to the
Holders and Other Holders of Registrable Securities on a PRO RATA basis based on
the total number of Registrable Securities held by them. No such reduction shall
(i) reduce the securities being offered by Parent for its own account to be
included in the registration and underwriting, or (ii) reduce the amount of
securities of the selling Holders of Registrable Securities included in the
registration below thirty percent (30%) of the total amount of securities
included in such registration, unless such offering registration does not
include shares of any other selling shareholders, including Other Holders, in
which event any or all of the Registrable Securities of the Holders may be
excluded in accordance with the immediately preceding sentence. If any Holder or
Other Holder disapproves of the terms of any such underwriting, such Holder or
Other Holder may elect to withdraw therefrom by written notice to Parent and the
underwriter, delivered at least ten (10) business days prior to the effective
date of the registration statement. Any Registrable Securities excluded or
withdrawn from such underwriting shall be excluded and withdrawn from the
registration. For any Holder or Other Holder which is a partnership or
corporation, the partners, retired partners and shareholders of such Holder or
Other Holder, or the estates and family members of any such partners and retired
partners and any trusts for the benefit of any of the foregoing person shall be
deemed to be a single "Holder" or Other Holder, as the case may be, and any PRO
RATA reduction with respect to such "Holder" or "Other Holder" shall be based
upon the aggregate amount of shares owned by all entities and individuals
included in such "Holder" or "Other Holder," as defined in this sentence. The
Holder's rights and Parent's obligations under this Section 2.2 shall expire on
the third anniversary of this Agreement.
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(b) Parent shall have the right to terminate or withdraw any registration
initiated by it under this Section 2.2 prior to the effectiveness of such
registration whether or not any Holder or Other Holder has elected to include
securities in such registration. The registration expenses of such withdrawn
registration shall be borne by Parent in accordance with Section 3.5 hereof.
3. REGISTRATION PROCEDURES.
3.1 REGISTRATION PROCEDURES PURSUANT TO SECTION 2. In connection with
Parent's obligations to effect the Registration of any Registrable Securities
pursuant to Section 2 hereof, Parent shall:
(a) prepare and file with the Commission the registration statement with
respect to such Registrable Securities required under Section 2.1(a)
provided that before filing a registration statement or prospectus or any
amendments or supplements thereto, Parent will furnish to Holders' and Other
Holders' counsel copies of all such documents proposed to be filed but only
those portions of such documents relating to the Holders and Other Holders
will be subject to the reasonable review of their respective counsel; and
Parent shall use commercially reasonable efforts to cause such registration
statement to become effective as soon as practicable;
(b) prepare and file with the Commission such amendments and supplements
to the registration statement and the prospectus used in connection
therewith as may be necessary to maintain the effectiveness of the
registration statement (for the applicable periods specified in Section 2.1
hereof), and comply with the provisions of the Securities Act with respect
to the disposition of all of the Registrable Securities during such
applicable period in accordance with the intended methods of disposition by
the Holders and Other Holders as set forth in the registration statement;
(c) promptly notify the Holders and Other Holders of the Registrable
Securities being registered and provide copies of all related documents (i)
when a registration statement, the prospectus or any prospectus supplement
or any amendment has been filed, and, with respect to a registration
statement or any post-effective amendment, when the same has become
effective, (ii) of any request by the Commission for amendments or
supplements to a registration statement or the prospectus or for additional
or supplemental information, (iii) of the issuance by the Commission of any
stop order suspending the effectiveness of a registration statement or the
written threat or initiation of any proceedings for that purpose, (iv) of
the receipt by Parent of any notification with respect to the suspension of
the qualification of the Registrable Securities for sale in any jurisdiction
or the written threat or initiation of any proceeding for that purpose, or
(v) at any time when a prospectus is required to be delivered under the
Securities Act in connection with any registration statement, (A) of the
happening of any event as a result of which such registration statement,
prospectus, any prospectus supplement, or any document incorporated by
reference in any of the foregoing contains an untrue statement of a material
fact or omits to state any material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they are made, not misleading or (B) that Parent is in
possession of material information that it deems advisable not to disclose
in a registration statement;
(d) make reasonable best efforts to obtain the withdrawal of any order
suspending the effectiveness of a registration statement or any
post-effective amendment thereto or any state filing made in connection
therewith at the earliest practicable date;
(e) furnish to the Holders and Other Holders of the securities being
sold such number of copies of the registration statement, each such
amendment and supplement thereto (in each case including all exhibits
thereto), the prospectus included in the registration statement and such
other documents as the Holders or Other Holders may reasonably request in
order to facilitate the disposition of the Registrable Securities being
offered;
(f) cause all such Registrable Securities to be listed on each
securities exchange or market system on which the Parent Common Stock is
then listed;
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(g) otherwise use commercially reasonable efforts to comply with all
applicable rules and regulations of the Commission;
(h) use commercially reasonable efforts to (i) register or qualify the
Registrable Securities under such other securities laws or Blue Sky laws of
such jurisdictions as the Holders or Other Holders shall reasonably request,
(ii) keep such registrations or qualifications in effect for so long as each
of the registration statements remains in effect and (iii) take any and all
such actions as may be reasonably necessary or advisable to enable the
Holders and Other Holders of Registrable Securities being sold to consummate
the disposition in such jurisdictions of such Registrable Securities;
PROVIDED, HOWEVER, that Parent shall not be required for any such purpose to
(A) qualify generally to do business as a foreign corporation in any
jurisdiction wherein it would not otherwise be required to qualify or (B)
consent to general service of process in any such jurisdiction; and
(i) cooperate with the Holders and Other Holders to effect the offering
and to facilitate the timely preparation and delivery of certificates
representing Registrable Securities to be sold under the registration
statement and not bearing any restrictive legends and such other actions as
may be reasonably necessary to complete the offering.
3.2 SUPPLEMENTS; AMENDMENTS. Upon the occurrence of any event contemplated
by Section 3.1(c)(v)(A), Parent shall, as soon as reasonably practicable,
prepare and furnish to each Holder and Other Holder a reasonable number of
copies of a prospectus supplemented or amended so that, as thereafter delivered
to the purchasers of Registrable Securities, such prospectus shall not contain
an untrue statement of a material fact or omit to state a material fact required
to bc stated therein or necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading. The Holders and
Other Holders agree that upon receipt of any notice from Parent of the happening
of any event of the kind described in Section 3. l(c)(v)(A), the Holders and
Other Holders shall forthwith discontinue the disposition of the Registrable
Securities, until each Holder and Other Holder receives copies of such amended
or supplemented registration statement or prospectus, and if so directed by
Parent, the Holders and Other Holders shall deliver to Parent all copies, other
than permanent file copies, then in the Holders' or Other Holders' possession of
the prospectus covering such Registrable Securities at the time of receipt of
such notice. The Holders and Other Holders agree that upon receipt of any notice
from Parent of the happening of any circumstance described in Section
3.1(c)(v)(B), the Holders and Other Holders shall forthwith discontinue the
disposition of the Registrable Securities until Parent notifies the Holders and
Other Holders of the ceasing of such circumstances.
3.3 HOLDER INFORMATION. Parent may require each Holder and Other Holder to
furnish to Parent such information regarding the Holders and Other Holders and
the distribution of the Registrable Securities as Parent may from time to time
reasonably request in order to comply with the Securities Act. The Holders and
Other Holders agree to notify Parent as promptly as practicable of any
inaccuracy or change in information previously furnished by them to Parent or of
the happening of any event in either case as a result of which any prospectus
contains an untrue statement of a material fact regarding the Holders or Other
Holders or the distribution of such Registrable Securities or omits to state any
material fact regarding the Holders or the distribution of such Registrable
Securities required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they are made, not
misleading, and to furnish promptly to Parent any additional information
required to correct or update any previously furnished information or required
so that such prospectus shall not contain with respect to such person or the
distribution of such Registrable Securities an untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein not misleading in light of the circumstances then
existing.
3.4 STOP TRANSFER INSTRUCTIONS; LEGEND. The Holders and Other Holders
agree and understand that, except as contemplated in this Agreement, the sale or
other disposition thereof by the Holders and Other Holders will not be,
registered under the Securities Act or the securities laws of any state and that
such
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shares may be sold or disposed of only in one (1) or more transactions
registered under the Securities Act and, where applicable, such state laws or as
to which an exemption from the registration requirements of the Securities Act
and, where applicable, such state laws is available. The Holders and Other
Holders acknowledge that, except as expressly set forth in this Agreement, the
Holders and Other Holders have no right to require Parent to cause the
registration of any Registrable Securities. The Holders and Other Holders
understand and agree that each certificate representing any Registrable
Securities (each, a "CERTIFICATE") shall be subject to stop transfer
instructions and shall bear a legend substantially as follows:
"THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A
TRANSACTION TO WHICH RULE 145 PROMULGATED UNDER THE SECURITIES ACT
OF 1933 APPLIES. THE SHARES REPRESENTED BY THIS CERTIFICATE MAY
NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, ASSIGNED, PLEDGED
OR HYPOTHECATED EXCEPT IN ACCORDANCE WITH THE PROVISIONS OF SUCH
RULE AND IN ACCORDANCE WITH THE TERMS OF AN AGREEMENT DATED AS OF
SEPTEMBER 9, 1998, BETWEEN THE REGISTERED HOLDER HEREOF FIRST
CONSULTING GROUP, INC., A COPY OF WHICH AGREEMENT IS ON FILE AT
THE PRINCIPAL OFFICES OF FIRST CONSULTING GROUP, INC."
Parent hereby agrees that it will, upon the request of a Holder or Other
Holder, eliminate any stop transfer instructions and any restrictive legend on
any certificates representing the Registrable Securities if (i) in the opinion
of counsel, which counsel and opinion (in form, scope and substance) shall be
reasonably satisfactory to Parent, the Holders or Other Holders are entitled to
sell or dispose of the Registrable Securities represented by such Certificate
without registration or (ii) such shares are herein disposed of by the Holders
or Other Holders under a registration statement pursuant to Section 2 herein and
in compliance with the Securities Act and applicable state securities laws.
3.5 EXPENSES OF REGISTRATION. Parent shall bear and pay all expenses other
than underwriting discounts and commissions relating to Registrable Securities
incurred in connection with each registration, filing or qualification pursuant
to Section 2, including (without limitation) all registration, filing, and
qualification fees, printing, and accounting fees, fees and expenses of
compliance with securities or blue sky laws, fees and disbursements of counsel
for Parent, but Parent shall not pay the fees and disbursements of counsel and
accountants for the Holders and Other Holders. Parent shall not, however, be
required to pay for expenses of any registration proceeding begun pursuant to
Section 2.1, the request of which has been subsequently withdrawn by the
Initiating Holders unless the withdrawal is based upon material adverse
information concerning Parent of which the Initiating Holders were not aware at
the time of such request. If the Holders and Other Holders are required to pay
the registration expenses, such expenses shall be borne by the holders of
securities (including Registrable Securities) requesting such registration in
proportion to the number of shares for which registration was requested.
3.6 DELAY OF REGISTRATION. For a period not to exceed sixty (60) days,
Parent shall not be obligated to prepare and file, or be prevented from delaying
or abandoning, or by written notice to the Holders and Other Holders, may
suspend the use of (and the Holders and Other Holders hereby agree not to use a
registration statement during such period) a registration statement pursuant to
this Agreement at any time when Parent, in its good faith judgment, reasonably
believes:
(i) that the filing thereof at the time requested, or the offering of
Parent Common Stock pursuant thereto, would be seriously detrimental to the
Company and its stockholders or
(ii) (a) that the filing thereof at the time requested, or the offering
of Parent Common Stock pursuant thereto, would materially and adversely
affect (1) a pending or scheduled public offering or private placement of
Parent securities, (2) an acquisition, merger, consolidation or similar
transaction by or of Parent, (3) pre-existing and continuing negotiations,
discussions or pending proposals with respect to any of the foregoing
transactions or (4) the financial condition of Parent in view of the
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disclosure of any pending or threatened litigation, claim, assessment or
governmental investigation which might be required thereby, and (b) that the
failure to disclose any material information with respect to the foregoing
items (1), (2), (3) or (4) would cause a violation of the Securities Act or
the Exchange Act.
In the event Parent, in good faith, reasonably believes that such conditions
are continuing after such sixty (60)-day period, it may, with the consent of the
holders of a majority of the shares of Parent Common Stock subject (or to be
subject) to the registration statement, which consent shall not be unreasonably
withheld, extend such sixty (60)-day period for an additional thirty (30) days.
Any further delay shall require the consent of the holders of all such shares.
3.7 BLACKOUT PERIODS. Notwithstanding any other provision of this
Agreement, the Holders and Other Holders understand that there may be periods
during which the Company's Board of Directors may determine, in good faith, that
it is in the best interest of the Company and its stockholders to defer
disclosure of material non-public information and that during such periods sales
of Registrable Securities and the effectiveness of any registration statement
covering Registrable Securities may be suspended or delayed. Each Holder or
Other Holder of Registrable Securities agrees by acquisition of such Registrable
Securities that upon receipt of any notice from the Company of the development
of any material non-public information, such Holder or Other Holder will
forthwith discontinue such Holder's or Other Holders' disposition of Registrable
Securities pursuant to the registration statement relating to such Registrable
Securities until such Holder's or Other Holders' receipt of copies of an
appropriately supplemented or amended prospectus (the "BLACKOUT PERIOD") and, if
so directed by the Company, such Holder or Other Holder will use its best
efforts to deliver to the Company (at the Company's expense) all copies, other
than permanent file copies then in such Holder's or Other Holder's possession,
of the prospectus relating to such Registrable Securities current at the time of
receipt of such notice. Notwithstanding the foregoing, (i) the aggregate
duration of all Blackout Periods in any ninety (90) day period shall not exceed
thirty (30) days, and (ii) no Blackout Period will be imposed during the five
(5) trading days following the effectiveness of a registration statement.
4. INDEMNIFICATION.
4.1 INDEMNIFICATION BY PARENT. In connection with any registration
statement which Parent may file pursuant to this Agreement, Parent shall, and it
hereby agrees to, indemnify and hold harmless each of the Holders, Other Holders
and each of their respective directors and officers, and each other person, if
any, which controls any such person within the meaning of the Securities Act,
from and against any and all losses, claims, damages or liabilities, and
expenses (including without limitation reasonable fees of counsel and any
amounts paid in any settlement effected with the consent of Parent) to which any
of the Holders, Other Holders and/or such director, officer or controlling
person thereof may become subject under the Securities Act, the common law or
otherwise, insofar as such losses, claims, damages or liabilities (or any
actions or proceedings, whether commenced or threatened and whether civil,
criminal or administrative, in respect thereof) or expenses arise out of or are
based upon (i) any untrue statement or alleged untrue statement of a material
fact contained in any registration statement, or any preliminary, final or
summary prospectus contained therein, or any amendment or supplement thereto or
(ii) any omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statement therein, in light of the
circumstances in which they were made, not misleading; PROVIDED, HOWEVER, that
Parent shall not be liable to any such person in any such case to the extent
that any such loss, claim, damage, liability (or action or proceeding, whether
commenced or threatened, in respect thereof) or expense arises out of or is
based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in any registration statement, or prospectus, or amendment
or supplement thereto, in reliance upon and in conformity with written
information furnished to Parent by such person expressly for use therein; and
provided, further, that Parent shall not be liable to any such person under the
indemnity agreement in this Section 4.1 to the extent that any such loss, claim,
damage or liability (or action or proceeding, whether commenced or threatened,
in respect thereof) or expense results from the
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fact that Registrable Securities were sold to a person to whom there was not
sent or given a copy of the registration statement or prospectus or of the
prospectus as then amended or supplemented.
4.2 INDEMNIFICATION BY THE HOLDERS. In connection with any registration
statement in which the Registrable Securities held by a Holder or Other Holder
are registered, such Holder or Other Holder shall, and such Holder and Other
Holder hereby agrees to indemnify and hold harmless Parent, each director and
officer of Parent and such other person, if any, who controls Parent within the
meaning of the Securities Act, from and against any and all losses, claims,
damages or liabilities, and expenses (including without limitation reasonable
fees of counsel and any amounts paid in settlement effected with the consent of
such Holder and Other Holder not to be unreasonably withheld) to which Parent,
such director or officer or controlling person may become subject under the
Securities Act, the common law or otherwise, insofar as such losses, claims,
damages or liabilities (or actions or proceedings, whether commenced or
threatened and whether civil, criminal or administrative, in respect thereof) or
expenses arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact in or omission or alleged omission to state a
material fact required to be stated in any registration statement or any
prospectus contained therein, or any amendment or supplement thereto, or
necessary to make the statements therein not misleading, to the extent, but only
to the extent, such statement or alleged statement or omission or alleged
omission was made in reliance upon and in conformity with written information
furnished to Parent by such Holder or such Other Holder expressly for use
therein; provided, that the obligation to indemnify will be several and not
joint as to each Holder and Other Holder and will be limited to the net amount
of proceeds received by such Holder from the sale of Registrable Securities
pursuant to such registration statement.
4.3 NOTICES OF CLAIMS, ETC. Promptly after receipt by an indemnified party
hereunder of written notice of the commencement of any action or proceeding with
respect to which a claim for indemnification may be made pursuant to this
Section 4 or a written threat to commence such action or proceeding, such
indemnified party shall, if a claim in respect thereof is to be made against an
indemnifying party, give written notice thereof (including a reasonable
explanation of the circumstances in connection therewith and copies of all
writings received relating thereto) to the latter; PROVIDED, HOWEVER, that the
failure of any indemnified party to give notice as provided herein shall not
relieve the indemnifying party of any obligations under Section 4.1 or 4.2
hereof unless such failure to provide notice prejudices in any material way the
rights of the indemnifying party to conduct the defense of such action or
proceeding. In case any such action is brought against an indemnified party, the
indemnifying party shall be entitled to participate in and to assume the defense
thereof, jointly with any other indemnifying party similarly notified, to the
extent that it may wish, with counsel reasonably satisfactory to such
indemnified party, and after such notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party shall not be liable to such indemnified party for any legal
or other expenses subsequently incurred by the latter in connection with the
defense thereof unless the indemnifying party has failed to assume the defense
of such claim and to employ counsel reasonably satisfactory to such indemnified
person. No indemnifying party shall consent to entry of any judgment or enter
into any settlement with respect to a claim made against an indemnified party
without the consent of the indemnified party, which consent shall not be
unreasonably withheld, or unless such judgment or settlement includes as an
unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all liability in connection with the
circumstances out of which the action or proceeding arose for all persons that
may be entitled to or obligated to provide indemnification or contribution under
this Section 4. No indemnified party shall consent to entry of any judgment or
enter into any settlement of any action the defense of which has been assumed by
an indemnifying party without the consent of such indemnifying party, which
consent shall not be unreasonably withheld. An indemnifying party who is not
entitled to, or elects not to assume the defense of a claim will not be
obligated to pay the fees and expenses of more than one (1) counsel for all
parties indemnified by such indemnifying party with respect to such claim.
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4.4 CONTRIBUTION. If for any reason the indemnification provided for in
Section 4.1 or Section 4.2 is unavailable to or insufficient to hold harmless an
indemnified party in respect of any losses, claims, damages, liabilities or
expenses specifically covered by the indemnification provisions set forth in
Section 4.1 or Section 4.2, then the indemnifying party shall contribute to the
amount paid or payable by the indemnified party as a result of such losses,
claims, damages, liabilities or expenses in such proportion as is appropriate to
reflect the relative fault of the indemnifying party and the indemnified party,
as well as any other relevant equitable considerations; provided, that the
obligation to contribute will be individual to each Holder and Other Holder will
be limited to the net amount of proceeds received by such Holder or Other Holder
from the sale of Registrable Securities pursuant to such registration statement.
The relative fault of such indemnifying party and indemnified party shall be
determined by reference to, among other things, whether any action in question,
including any untrue or alleged untrue statement of a material fact or omission
or alleged omission to state a material fact, has been made by, or relates to
information supplied by, such indemnifying party or indemnified party, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such action. The parties hereto agree that it would not be
just and equitable if contribution pursuant to this Section 4.4 were determined
by pro rata allocation or by any other method of allocation which does not take
account of the equitable considerations referred to in the first sentence of
this paragraph. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11 (f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
5. MISCELLANEOUS.
5.1 NON-ASSIGNABILITY OF REGISTRATION RIGHTS. The rights to cause Parent,
or its successors or assigns to register Registrable Securities pursuant to this
Agreement are reserved solely for the use and benefit of the Holders and Other
Holders and may not be assigned or transferred by the Holders and Other Holders
to any other person other than to an Affiliate of such Holders or a Permitted
Transferee. A merger or consolidation of or transfer of all or substantially all
the assets of a Holder or Other Holder (a "FUNDAMENTAL TRANSACTION") shall not
be deemed an assignment for purposes of this Section 5.1 and the Registrable
Securities held by a Holder or Other Holder immediately prior to the
consummation of a Fundamental Transaction shall remain Registrable Securities
subsequent to such Fundamental Transaction.
5.2 NOTICES. All notices, requests, claims, demands, waivers and other
communications hereunder shall be in writing and shall be deemed to have been
duly given when delivered by hand, if delivered personally, by courier or by
telecopy, or three days after being deposited in the mail (registered or
certified mail, postage prepaid, return receipt requested) as follows:
To Parent at:
First Consulting Group, Inc.
111 W. Ocean Boulevard--4th Floor
Long Beach, CA 90802
Telephone: (562) 624-5200
Fax: (562) 432-1932
With a copy to:
Patrick A. Pohlen, Esq.
Cooley Godward LLP
Five Palo Alto Square
3000 El Camino Real
Palo Alto, CA 94306
Telephone: (650) 843-5000
Fax: (650) 849-7400
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To Merger Sub:
Foxtrot Acquisition Sub, Inc.
111 W. Ocean Boulevard--4th Floor
Long Beach, CA 90802
Telephone: (562) 624-5200
Fax: (562) 432-1932
To any Holder:
at the address set forth under the name of such Holder on Annex A
hereof.
5.3 PARTIES IN INTEREST. All the terms and provisions of this Agreement
shall be binding upon, shall inure to the benefit of and shall be enforceable by
the parties hereto and their respective successors.
5.4 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the domestic substantive laws of the State of California without
giving effect to any choice or conflict of law provision or rule that would
cause the application of the domestic substantive laws of any other
jurisdiction,
5.5 HEADINGS. The descriptive headings of the several Sections and
paragraphs of this Agreement are for convenience of reference only, and do not
constitute a part of and shall not be deemed to limit or affect in any way any
of the provisions of this Agreement.
5.6 ENTIRE AGREEMENT; AMENDMENTS. This Agreement and other writings
referred to herein or delivered pursuant hereto which form a part hereof contain
the entire understanding of the parties with respect to its subject matter. This
Agreement supersedes all prior agreements and understandings between the parties
with respect to its subject matter, including the agreement relating to
registration rights set forth in Article V of that certain Common Stock and
Warrant Purchase Agreement between the Company and the Selling Parties (as
defined therein) dated June 30, 1995 and other related provisions thereof. This
Agreement may be amended and the observance of any term of this Agreement may be
waived only by a written instrument duly executed by Parent and each of the
Holders.
5.7 COUNTERPARTS. This Agreement may be executed in two (2) or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one (1) and the same instrument.
5.8 CONSTRUCTION OF TERMS. The singular may include the plural and vice
versa, unless the context clearly indicates to the contrary. The words "hereof,
"herein" and other similar compounds of the word "here" shall mean and refer to
the entire Agreement and not to any particular Section.
5.9 SEVERABILITY OF PROVISIONS. If any provision of this Agreement is
found to be unenforceable, the other provisions shall remain in effect.
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IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
duly executed as of the date first written above.
FIRST CONSULTING GROUP, INC.
By: __________________________________
Title:
HOLDERS:
______________________________________
David S. Lipson
TECHNOLOGY LEADERS II
By: __________________________________
Title:
<*>SAFEGUARD</*> SCIENTIFICS, INC.
By: __________________________________
Title:
WARRANT AND STOCK TRUST
By: __________________________________
Title:
REGISTRATION RIGHTS AGREEMENT
SIGNATURE PAGE
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<PAGE>
ANNEX A
<TABLE>
<CAPTION>
HOLDER
-----------------------
<C> <S> <C>
David S. Lipson
Technology Leaders II
<*>Safeguard</*>
Scientifics, Inc.
Warrant and Stock Trust
</TABLE>
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<PAGE>
APPENDIX F
PBCL DISSENTERS' RIGHTS
PENNSYLVANIA
BUSINESS CORPORATION LAW
1930 DISSENTERS RIGHTS.--(a) General rule.--If any shareholder of a
domestic business corporation that is to be a party to a merger or consolidation
pursuant to a plan of merger or consolidation objects to the plan of merger or
consolidation and complies with the provisions of Subchapter D of Chapter 15
(relating to dissenters rights), the shareholder shall be entitled to the rights
and remedies of dissenting shareholders therein provided, if any. See also
section 1906(c) (relating to dissenters rights upon special treatment).
(b) Plans adopted by directors only.--Except as otherwise provided pursuant
to section 1571(c) (relating to grant of optional dissenters rights), Subchapter
D of Chapter 15 shall not apply to any of the shares of a corporation that is a
party to a merger or consolidation pursuant to section 1924(b)(1)(i) (relating
to adoption by board of directors).
(c) Cross references.--See sections 1571(b) (relating to exceptions) and
1904 (relating to de facto transaction doctrine abolished).
SUBCHAPTER D. DISSENTERS RIGHTS
1571 APPLICATION AND EFFECT OF SUBCHAPTER.--(a) General rule.--Except as
otherwise provided in subsection (b), any shareholder of a business corporation
shall have the right to dissent from, and to obtain payment of the fair value of
his shares in the event of, any corporate action, or to otherwise obtain fair
value for his shares, where this part expressly provides that a shareholder
shall have the rights and remedies provided in this subchapter. See:
Section 1906(c) (relating to dissenters rights upon special treatment).
Section 1930 (relating to dissenters rights).
Section 1931(d) (relating to dissenters rights in share exchanges).
Section 1932(c) (relating to dissenters rights in asset transfers).
Section 1952(d) (relating to dissenters rights in division).
Section 1962(c) (relating to dissenters rights in conversion).
Section 2104(b) (relating to procedure).
Section 2324 (relating to corporation option where a restriction on transfer
of a security is held invalid).
Section 2325(b) (relating to minimum vote requirement).
Section 2704(c) (relating to dissenters rights upon election).
Section 2705(d) (relating to dissenters rights upon renewal of election).
Section 2907(a) (relating to proceedings to terminate breach of qualifying
conditions).
Section 7104(b)(3) (relating to procedure).
(b) Exceptions.--(1) Except as otherwise provided in paragraph (2) the
holders of the shares of any class or series of shares that, at the record date
fixed to determine the shareholders entitled to notice of and to vote at the
meeting at which a plan specified in any of Section 1930, 1931(d), 1932(c) or
1952(d) is to be voted on, are either:
(i) listed on a national securities exchange; or
(ii) held of record by more than 2,000 shareholders; shall not have the
right to obtain payment of the fair value of any such shares under this
subchapter.
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(2) Paragraph (1) shall not apply to and dissenters rights shall be
available without regard to the exception provided in that paragraph in the case
of:
(i) Shares converted by a plan if the shares are not converted solely
into shares of the acquiring, surviving, new or other corporation or solely
into such shares and money in lieu of fractional shares.
(ii) Shares of any preferred or special class unless the articles, the
plan or the terms of the transaction entitle all shareholders of the class
to vote thereon and require for the adoption of the plan or the effectuation
of the transaction the affirmative vote of a majority of the votes cast by
all shareholders of the class.
(iii) Shares entitled to dissenters rights under Section 1906(c)
(relating to dissenters rights upon special treatment).
(3) The shareholders of a corporation that acquires by purchase, lease,
exchange or other disposition all or substantially all of the shares, property
or assets of another corporation by the issuance of shares, obligations or
otherwise, with or without assuming the liabilities of the other corporation and
with or without the intervention of another corporation or other person, shall
not be entitled to the rights and remedies of dissenting shareholders provided
in this subchapter regardless of the fact, if it be the case, that the
acquisition was accomplished by the issuance of voting shares of the corporation
to be outstanding immediately after the acquisition sufficient to elect a
majority or more of the directors of the corporation.
(c) Grant of optional dissenters rights.--The bylaws or a resolution of the
board of directors may direct that all or a part of the shareholders shall have
dissenters rights in connection with any corporate action or other transaction
that would otherwise not entitle such shareholders to dissenters rights.
(d) Notice of dissenters rights.--Unless otherwise provided by statute, if a
proposed corporate action that would give rise to dissenters rights under this
subpart is submitted to a vote at a meeting of shareholders, there shall be
included in or enclosed with the notice of meeting:
(1) a statement of the proposed action and a statement that the
shareholders have a right to dissent and obtain payment of the fair value of
their shares by complying with the terms of this subchapter; and
(2) a copy of this subchapter.
(e) Other statutes.--The procedures of this subchapter shall also be
applicable to any transaction described in any statute other than this part that
makes reference to this subchapter for the purpose of granting dissenters
rights.
(f) Certain provisions of articles ineffective.--This subchapter may not be
relaxed by any provision of the articles.
(g) Cross references.--See sections 1105 (relating to restriction on
equitable relief), 1904 (relating to de facto transaction doctrine abolished)
and 2512 (relating to dissenters rights procedure).
1572 DEFINITIONS.--The following words and phrases when used in this
subchapter shall have the meanings given to them in this Section unless the
context clearly indicates otherwise:
"CORPORATION." The issuer of the shares held or owned by the dissenter
before the corporate action or the successor by merger, consolidation,
division, conversion or otherwise of that issuer. A plan of division may
designate which of the resulting corporations is the successor corporation
for the purposes of this subchapter. The successor corporation in a division
shall have sole responsibility for payments to dissenters and other
liabilities under this subchapter except as otherwise provided in the plan
of division.
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"DISSENTER." A shareholder or beneficial owner who is entitled to and does
assert dissenters rights under this subchapter and who has performed every
act required up to the time involved for the assertion of those rights.
"FAIR VALUE." The fair value of shares immediately before the effectuation
of the corporate action to which the dissenter objects taking into account
all relevant factors, but excluding any appreciation or depreciation in
anticipation of the corporate action.
"INTEREST." Interest from the effective date of the corporate action until
the date of payment at such rate as is fair and equitable under all of the
circumstances, taking into account all relevant factors including the
average rate currently paid by the corporation on its principal bank loans.
1573 RECORD AND BENEFICIAL HOLDERS AND OWNERS.--(a) Record holders of
shares.--A record holder of shares of a business corporation may assert
dissenters rights as to fewer than all of the shares registered in his name only
if he dissents with respect to all the shares beneficially owned by any one
person and discloses the name and address of the person or persons on whose
behalf he dissents. In that event, his rights shall be determined as if the
shares as to which he has dissented and his other shares were registered in the
names of different shareholders.
(b) Beneficial owners of shares.--A beneficial owner of shares of a business
corporation who is not the record holder may assert dissenters rights with
respect to shares held on his behalf and shall be treated as a dissenting
shareholder under the terms of this subchapter if he submits to the corporation
not later than the time of the assertion of dissenters rights a written consent
of the record holder. A beneficial owner may not dissent with respect to some
but less than all shares of the same class or series owned by the owner, whether
or not the shares so owned by him are registered in his name.
1574 NOTICE OF INTENTION TO DISSENT.--If the proposed corporate action is
submitted to a vote at a meeting of shareholders of a business corporation, any
person who wishes to dissent and obtain payment of the fair value of his shares
must file with the corporation, prior to the vote, a written notice of intention
to demand that he be paid the fair value of his shares if the proposed action is
effectuated, must effect no change in the beneficial ownership of his shares
from the date of such filing continuously through the effective date of the
proposed action and must refrain from voting his shares in approval of such
action. A dissenter who fails in any respect shall not acquire any right to
payment of the fair value of his shares under this subchapter. Neither a proxy
nor a vote against the proposed corporate action shall constitute the written
notice required by this section.
1575 NOTICE TO DEMAND PAYMENT.--(a) General rule.--If the proposed
corporate action is approved by the required vote at a meeting of shareholders
of a business corporation, the corporation shall mail a further notice to all
dissenters who gave due notice of intention to demand payment of the fair value
of their shares and who refrained from voting in favor of the proposed action.
If the proposed corporate action is to be taken without a vote of shareholders,
the corporation shall send to all shareholders who are entitled to dissent and
demand payment of the fair value of their shares a notice of the adoption of the
plan or other corporate action. In either case, the notice shall:
(1) State where and when a demand for payment must be sent and
certificates for certificated shares must be deposited in order to obtain
payment.
(2) Inform holders of uncertificated shares to what extent transfer of
shares will be restricted from the time that demand for payment is received.
(3) Supply a form for demanding payment that includes a request for
certification of the date on which the shareholder, or the person on whose
beneficial shareholder dissents, acquired beneficial ownership of the
shares.
(4) Be accompanied by a copy of this subchapter.
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(b) Time for receipt of demand for payment.--The time set for receipt of the
demand and deposit of certificated shares shall be not less than 30 days from
the mailing of the notice.
1576 FAILURE TO COMPLY WITH NOTICE TO DEMAND PAYMENT, ETC.--(a) Effect of
failure of shareholder to act.--A shareholder who fails to timely demand
payment, or fails (in the case of certificated shares) to timely deposit
certificates, as required by a notice pursuant to Section 1575 (relating to
notice to demand payment) shall not have any right under this subchapter to
receive payment of the fair value of his shares.
(b) Restriction on uncertificated shares.--If the shares are not represented
by certificates, the business corporation may restrict their transfer from the
time of receipt of demand for payment until effectuation of the proposed
corporate action or the release of restrictions under the terms of Section
1577(a) (relating to failure to effectuate corporate action).
(c) Rights retained by shareholder.--The dissenter shall retain all other
rights of a shareholder until those rights are modified by effectuation of the
proposed corporate action.
1577 RELEASE OF RESTRICTIONS OR PAYMENT FOR SHARES.--(a) Failure to
effectuate corporate action.--Within 60 days after the date set for demanding
payment and depositing certificates, if the business corporation has not
effectuated the proposed corporate action, it shall return any certificates that
have been deposited and release uncertificated shares from any transfer
restrictions imposed by reason of the demand for payment.
(b) Renewal of notice to demand payment.--When uncertified shares have been
released from transfer restrictions and deposited certificates have been
returned, the corporation may at any later time send a new notice conforming to
the requirements of Section 1575 (relating to notice to demand payment), with
like effect.
(c) Payment of fair value of shares.--Promptly after effectuation of the
proposed corporate action, or upon timely receipt of demand for payment if the
corporate action has already been effectuated, the corporation shall either
remit to dissenters who have made demand and (if their shares are certificated)
have deposited their certificates the amount that the corporation estimates to
be the fair value of the shares, or give written notice that no remittance under
this Section will be made. The remittance or notice shall be accompanied by:
(1) The closing balance sheet and statement of income of the issuer of
the shares held or owned by the dissenter for a fiscal year ending not more
than 16 months before the date of remittance or notice together with the
latest available interim financial statements.
(2) A statement of the corporation's estimate of the fair value of the
shares.
(3) A notice of the right of the dissenter to demand payment or
supplemental payment, as the case may be, accompanied by a copy of this
subchapter.
(d) Failure to make payment.--If the corporation does not remit the amount
of its estimate of the fair value of the shares as provided by subSection (c),
it shall return any certificates that have been deposited and release
uncertificated shares from any transfer restrictions imposed by reason of the
demand for payment. The corporation may make a notation on any such certificate
or on the records of the corporation relating to any such uncertificated shares
that such demand has been made. If shares with respect to which notation has
been so made shall be transferred, each new certificate issued therefor or the
records relating to any transferred uncertificated shares shall bear a similar
notation, together with the name of the original dissenting holder or owner of
such shares. A transferee of such shares shall not acquire by such transfer any
rights in the corporation other than those which the original dissenter had
after making demand for payment of their fair value.
F-4
<PAGE>
1578 ESTIMATE BY DISSENTER OF FAIR VALUE OF SHARES.--(a) General rule--If
the business corporation gives notice of its estimate of the fair value of the
shares, without remitting such amount, or remits payment of its estimate of the
fair value of a dissenter's shares as permitted by Section 1577(c) (relating to
payment of fair value of shares) and the dissenter believes that the amount
stated or remitted is less than the fair value of his shares, he may send to the
corporation his own estimate of the fair value of the shares, which shall be
deemed a demand for payment of the amount or the deficiency.
(b) Effect of failure to file estimate.--Where the dissenter does not file
his own estimate under subSection (a) within 30 days after the mailing by the
corporation of its remittance or notice, the dissenter shall be entitled to no
more than the amount stated in the notice or remitted to him by the corporation.
1579 VALUATION PROCEEDINGS GENERALLY.--(a) General rule--Within 60 days
after the latest of:
(1) Effectuation of the proposed corporate action;
(2) Timely receipt of any demands for payment under Section 1575
(relating to notice to demand payment); or
(3) Timely receipt of any estimates pursuant to Section 1578 (relating
to estimate by dissenter of fair value of shares); if any demands for
payment remain unsettled, the business corporation may file in court an
application for relief requesting that the fair value of the shares be
determined by the court.
(b) Mandatory joinder of dissenters.--All dissenters, wherever residing,
whose demands have not been settled shall be made parties to the proceeding as
in an action against their shares. A copy of the application shall be served on
each such dissenter. If a dissenter is a nonresident, the copy may be served on
him in the manner provided or prescribed by or pursuant to 42 Pa.C.S. Ch. 53
(relating to bases of jurisdiction and interstate and international procedure).
(c) Jurisdiction of the court.--The jurisdiction of the court shall be
plenary and exclusive. The court may appoint an appraiser to receive evidence
and recommend a decision on the issue of fair value. The appraiser shall have
such power and authority as may be specified in the order of appointment or in
any amendment thereof.
(d) Measure of recovery.--Each dissenter who is made a party shall be
entitled to recover the amount by which the fair value of his shares is found to
exceed the amount, if any, previously remitted, plus interest.
(e) Effect of corporation's failure to file application.--If the corporation
fails to file an application as provided in subSection (a), any dissenter who
made a demand and who has not already settled his claim against the corporation
may do so in the name of the corporation at any time within 30 days after the
expiration of the 60-day period. If a dissenter does not file an application
within the 30-day period, each dissenter entitled to file an application shall
be paid the corporation's estimate of the fair value of the shares and no more,
and may bring an action to recover any amount not previously remitted.
1580 COSTS AND EXPENSES OF VALUATION PROCEEDINGS.--(a) General rule.--The
costs and expenses of any proceeding under Section 1579 (relating to valuation
proceedings generally) including the reasonable compensation and expenses of the
appraiser appointed by the court, shall be determined by the court and assessed
against the business corporation except that any part of the costs and expenses
may be apportioned and assessed as the court deems appropriate against all or
some of the dissenters who are parties and whose action in demanding
supplemental payment under Section 1578 (relating to estimate by dissenter of
fair value of shares) the court finds to be dilatory, obdurate, arbitrary,
vexatious or in bad faith.
(b) Assessment of counsel fees and expert fees where lack of good faith
appears.--Fees and expenses of counsel and of experts for the respective parties
may be assessed as the court deems appropriate against
F-5
<PAGE>
the corporation and in favor of any or all dissenters if the corporation failed
to comply substantially with the requirements of this subchapter and may be
assessed against either the corporation or a dissenter, in favor of any other
party, if the court finds that the party against whom the fees and expenses arc
assessed acted in bad faith or in a dilatory, obdurate, arbitrary or vexatious
manner in respect to the rights provided by this subchapter.
(c) Award of fees for benefits to other dissenters.--If the court finds that
the services of counsel for any dissenter were of substantial benefit to other
dissenters similarly situated and should not be assessed against the
corporation, it may award to those counsel reasonable fees to be paid out of the
amounts awarded to the dissenters who were benefited.
F-6
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
FCG's Bylaws provide that FCG will indemnify its directors and executive
officers and may indemnify its other officers, employees and other agents to the
fullest extent permitted by Delaware law. FCG is also empowered under its Bylaws
to enter into indemnification contracts with its directors and officers and to
purchase insurance on behalf of any person it is required or permitted to
indemnify. Pursuant to this provision, FCG expects to enter into indemnification
agreements with each of its directors and executive officers.
FCG has obtained officer and director liability insurance with respect to
liabilities arising out of certain matters, including matters arising under the
Securities Act. In addition, FCG's Certificate of Incorporation provides that,
to the fullest extent permitted by Delaware law, FCG's directors will not be
liable for monetary damages for breach of the directors' fiduciary duty of care
to FCG and its stockholders. This provision in the Certificate of Incorporation
does not eliminate the duty of care, and in appropriate circumstances, equitable
remedies such as an injunction or other forms of non-monetary relief would
remain available under Delaware law. Under current Delaware law, a director's
liability to FCG or its stockholders may not be limited with respect to any
breach of the director's duty of loyalty to FCG or its stockholders, for acts or
omissions not in good faith or involving intentional misconduct, for knowing
violations of law, for any transaction from which the director derived an
improper personal benefit, for improper transactions between the director and
FCG and for improper distributions to stockholders and loans to directors and
officers. This provision also does not affect a director's responsibilities
under any other laws such as the federal securities laws or state or federal
environmental laws.
There is no pending litigation or proceeding involving a director or officer
of FCG as to which indemnification is being sought, nor is FCG aware of any
pending or threatened litigation that may result in claims for indemnification
by any director or officer.
THE REGISTRANT HAS OBTAINED DIRECTORS' AND OFFICERS' LIABILITY INSURANCE
THAT COVERS CERTAIN LIABILITIES, INCLUDING LIABILITIES TO THE REGISTRANT AND ITS
STOCKHOLDERS.
Pursuant to the Reorganization Agreement, all rights to indemnification
existing in favor of the persons serving as directors or officers of ISCG as of
the date of the Reorganization Agreement for acts and omissions occurring prior
to the Effective Time, as provided in the ISCG Bylaws and as provided in any
indemnification agreements between ISCG and said officers and directors shall
survive the Merger and shall be observed by FCG and the Surviving Corporation
for a period of not less than six years from the Effective Time. The
Reorganization Agreement also provides that from the Effective Time until the
third anniversary of the date on which the Merger becomes effective, the
Surviving Corporation shall maintain in effect, for the benefit of the persons
serving as directors and officers of ISCG as of the date of the Reorganization
Agreement with respect to acts or omissions occurring prior to the Effective
Time, the lesser of (i) the existing policy of directors' and officers'
liability insurance maintained by ISCG as of the date of the Reorganization
Agreement (the "Existing Policy") and (ii) the amount of coverage purchased by
150% of the amount of the last annual premium paid by ISCG prior to the date of
the Reorganization Agreement for the Existing Policy; provided, however, that
the Surviving Corporation may substitute for the Existing Policy a policy or
policies of comparable coverage.
II-1
<PAGE>
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ----------- ------------------------------------------------------------------------------------------------------
<C> <S>
2.1 Agreement and Plan of Merger and Reorganization dated as of September 9, 1998, by and among First
Consulting Group, Inc., a Delaware corporation ("FCG"), Foxtrot Acquisition Sub, Inc., a Delaware
corporation and a wholly-owned subsidiary of FCG, and Integrated Systems Consulting Group, Inc., a
Pennsylvania corporation ("ISCG") (incorporated by reference to Exhibit 99.1 of the Registrant's
Current Report on Form 8-K filed on September 22, 1998. (the "Form 8-K")) (See Appendix A to the
Joint Proxy Statement/ Prospectus).
3.1 Certificate of Incorporation of the Registrant (incorporated by reference to Exhibit 3.1 to the
Registrant's Form S-1 Registration Statement (No. 333-41121) originally filed on November 26, 1997
(the "Form S-1")).
3.2 Bylaws of the Registrant (incorporated by reference to Exhibit 3.3 to the Registrant's Form S-1).
4.1 Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.1 to the Registrant's Form
S-1).
5.1* Legal Opinion of Cooley Godward LLP.
8.1* Tax Opinion of Cooley Godward LLP.
8.2* Tax Opinion of Saul, Ewing, Remick & Saul LLP.
10.1 1997 Equity Incentive Plan Certificate (incorporated by reference to Exhibit 10.1 to the Registrant's
Form S-1).
10.1.1 Form of Incentive Stock Option between the Registrant and its employees, directors, and consultants
(incorporated by reference to Exhibit 10.1.1 to the Registrant's Form S-1).
10.1.2 Form of Non-Statutory Stock Option between the Registrant and its employees, directors, and
consultants (incorporated by reference to Exhibit 10.1.2 to the Registrant's Form S-1).
10.1.3 Form of Non-Statutory Stock Option (United Kingdom) between the Registrant and its United Kingdom
resident employees, directors, and consultants (incorporated by reference to Exhibit 10.1.3 to the
Registrant's Form S-1).
10.1.4 Form of 1997 Equity Incentive Plan Notice of Exercise between the Registrant and its employees,
directors, and consultants (incorporated by reference to Exhibit 10.1.4 to the Registrant's Form
S-1).
10.2 1997 Non-Employee Directors' Stock Option Plan (incorporated by reference to Exhibit 10.2 to the
Registrant's Form S-1).
10.2.1 Form of Non-Statutory Stock Option (Initial Option-Continuing Non-Employee Directors) between the
Registrant its continuing non-employee directors (incorporated by reference to Exhibit 10.2.1 to the
Registrant's Form S-1).
10.2.2 Form of Non-Statutory Stock Option (Initial Option-New Non-Employee Directors) between the Registrant
and its non-employee directors (incorporated by reference to Exhibit 10.2.2 to the Registrant's Form
S-1).
10.2.3 Form of Non-Statutory Stock Option (Annual Option) between the Registrant and its non-employee
directors (incorporated by reference to Exhibit 10.2.3 to the Registrant's Form S-1).
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ----------- ------------------------------------------------------------------------------------------------------
<C> <S>
10.2.4 Form of 1997 Non-Employee Directors' Stock Option Plan Notice of Exercise between the Registrant and
its non-employee directors (incorporated by reference to Exhibit 10.2.4 to the Registrant's Form
S-1).
10.3 1994 Restricted Stock Plan, as amended (incorporated by reference to Exhibit 10.3 to the Registrant's
Form S-1).
10.3.1 Form of Amended and Restated Restricted Stock Agreement between the Registrant and its executive
officers (incorporated by reference to Exhibit 10.3.1 to the Registrant's Form S-1).
10.3.2 Form of Loan and Pledge Agreement between the Registrant and its vice presidents (incorporated by
reference to Exhibit 10.3.2 to the Registrant's Form S-1).
10.3.3 Form of Secured Promissory Note (Non-Recourse) between the Registrant and its vice presidents
(incorporated by reference to Exhibit 10.3.3 to the Registrant's Form S-1).
10.4 Second Amended and Restated Associate 401(k) and Stock Ownership Plan (incorporated by reference to
Exhibit 10.4 to the Registrant's Form S-1).
10.5 First Amendment to the Second Amended and Restated Associate 401(k) and Stock Ownership Plan
(incorporated by reference to Exhibit 10.5 to the Registrant's Form S-1).
10.6 1997 Non-Employee Director Restricted Stock Plan (incorporated by reference to Exhibit 10.6 to the
Registrant's Form S-1).
10.6.1 Form of Restricted Stock Agreement between the Registrant and its non-employee directors (incorporated
by reference to Exhibit 10.6.1 to the Registrant's Form S-1).
10.7 Supplemental Executive Retirement Plan (incorporated by reference to Exhibit 10.7 to the Registrant's
Form S-1).
10.8 Form of Indemnity Agreement between the Registrant and its directors and executive officers
(incorporated by reference to Exhibit 10.8 to the Registrant's Form S-1).
10.9 Lease, dated as of October 3, 1996, between the Registrant and Landmark Square Associates, L.P. for
the Registrant's principal executive offices in Long Beach, CA (incorporated by reference to Exhibit
10.9 to the Registrant's Form S-1).
10.10 Credit Agreement between the Registrant and Wells Fargo Bank, dated December 18, 1997 (incorporated by
reference to Exhibit 10.10 to the Registrant's Form S-1).
11.1 Statement of Computation of Earnings (Loss) per Share for ISCG (1).
11.2 Statement of Computation of Earnings (Loss) per Share for FCG (2).
21.1 Subsidiaries of the Registrant (incorporated by reference to Exhibit 21.1 to the Registrant's Form
S-1).
23.1 Consent of Grant Thornton LLP.
23.2 Consent of KPMG Peat Marwick LLP.
23.3* Consent of Cooley Godward LLP (See Exhibits 5.1 and 8.1).
23.4* Consent of Saul, Ewing, Remick & Saul LLP (See Exhibit 8.2).
24.1* Power of Attorney.
99.1 Form of ISCG Voting Agreement (incorporated by reference to Exhibit 99.2 of the Registrant's Form
8-K).
99.2 Form of FCG Voting Agreement (incorporated by reference to Exhibit 99.3 of the Registrant's Form 8-K).
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ----------- ------------------------------------------------------------------------------------------------------
<C> <S>
99.3 Form of ISCG Affiliate Agreement (incorporated by reference to Exhibit 99.4 of the Registrant's Form
8-K) (See Appendix D-1 of the Joint Proxy Statement/Prospectus).
99.4 Form of FCG Affiliate Agreement (incorporated by reference to Exhibit 99.5 of the Registrant's Form
8-K) (See Appendix D-2 of the Joint Proxy Statement/Prospectus).
99.5 Registration Rights Agreement (See Appendix E of the Joint Proxy Statement/Prospectus).
99.6* Form of FCG Proxy Card.
99.7* Form of ISCG Proxy Card.
99.8 Consent of Hambrecht & Quist LLC.
99.9 Consent of Robert W. Baird & Co. Incorporated.
</TABLE>
- ------------------------
* Previously filed.
(1) Incorporated by reference to the ISCG Annual Report on Form 10-K for the
year ended December 31, 1997 and the ISCG Quarterly Report on Form 10-Q for
the six- month period ended June 30, 1998.
(2) Incorporated by reference to Exhibit 11.1 of the Registrant's Form S-1 and
Exhibit 11.1 of the Registrant's Quarterly Report on Form 10-Q for the
six-month period ended June 30, 1998.
(b) FINANCIAL STATEMENT SCHEDULES
All schedules relating to FCG have been omitted because they are not
applicable or not required or the information required to be set forth
therein is included in the Financial Statements of FCG included elsewhere in
the Joint Proxy Statement/Prospectus.
All schedules relating to ISCG have been omitted because they are not
applicable or not required or the information required to be set forth therein
is included in the Annual Reports on Form 10-K of ISCG incorporated by reference
into the Joint Proxy Statement/Prospectus.
(c) ITEM 4(B) REPORTS
See Appendices B-1 and B-2 to the Joint Proxy Statement/Prospectus.
ITEM 22. UNDERTAKINGS.
(1) The Registrant hereby undertakes to respond to requests for information
that is incorporated by reference into the Joint Proxy Statement/Prospectus
pursuant to Items 4, 10(b), 11 or 13 of Form S-4, within one business day of
receipt of such request, and to send the incorporated documents by first class
mail or other equally prompt means. This includes information contained in
documents filed subsequent to the effective date of the Registration Statement
through the date of responding to the request.
(2) The Registrant hereby undertakes to supply by means of a post-effective
amendment all information concerning a transaction, and the company being
acquired involved therein, that was not the subject of and included in the
Registration Statement when it became effective.
(3) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
(4) Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended (the "Act") may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the Amended and Restated
Certificate of Incorporation (the "Certificate of Incorporation") and the Bylaws
(the "Bylaws") of the Registrant and the Delaware General Corporation Law, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in a successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the
question has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(5) (A) The undersigned Registrant hereby undertakes as follows: that prior
to any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this Registration Statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
(B) The Registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (A) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as a part of an
amendment to the Registration Statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
First Consulting Group, Inc. has duly caused this Amendment to the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Long Beach, County of Los Angeles, State of
California on the 9th day of October, 1998.
<TABLE>
<S> <C> <C>
By: /s/ LUTHER J. NUSSBAUM
------------------------------------------
Luther J. Nussbaum,
CHIEF EXECUTIVE OFFICER
</TABLE>
Pursuant to the require of the Securities Act of 1933, as amended, this
Amendment to this Registration Statement has been signed by the following
persons in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
/s/ LUTHER J. NUSSBAUM Chief Executive Officer
- ------------------------------ and Director (Principal October 9, 1998
Luther J. Nussbaum Executive Officer)
*
- ------------------------------ Chairman and Director October 9, 1998
James A. Reep
Chief Financial Officer
* and Vice President
- ------------------------------ (Principal Financial and October 9, 1998
Thomas A. Reep Accounting Officer)
*
- ------------------------------ Director October 9, 1998
Steven Heck
*
- ------------------------------ Director October 9, 1998
Steven Lazarus
*
- ------------------------------ Director October 9, 1998
Stanley R. Nelson
*
- ------------------------------ Director October 9, 1998
Stephen E. Olson
*
- ------------------------------ Director October 9, 1998
Scott S. Parker
*
- ------------------------------ Director October 9, 1998
Jack O. Vance
</TABLE>
<TABLE>
<S> <C> <C> <C>
* /s/ LUTHER J. NUSSBAUM
-------------------------------
Luther J. Nussbaum,
ATTORNEY-IN-FACT
</TABLE>
II-6
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ----------- ---------------------------------------------------------------------------------------------
<C> <S> <C>
2.1 Agreement and Plan of Merger and Reorganization dated as of September 9, 1998, by and among
First Consulting Group, Inc., a Delaware corporation ("FCG"), Foxtrot Acquisition Sub,
Inc., a Delaware corporation and a wholly-owned subsidiary of FCG, and Integrated Systems
Consulting Group, Inc., a Pennsylvania corporation ("ISCG") (incorporated by reference to
Exhibit 99.1 of the Registrant's Current Report on Form 8-K filed on September 22, 1998.
(the "Form 8-K")) (See Appendix A to the Joint Proxy Statement/Prospectus).
3.1 Certificate of Incorporation of the Registrant (incorporated by reference to Exhibit 3.1 to
the Registrant's Form S-1 Registration Statement (No. 333-41121) originally filed on
November 26, 1997 (the "Form S-1")).
3.2 Bylaws of the Registrant (incorporated by reference to Exhibit 3.3 to the Registrant's Form
S-1).
4.1 Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.1 to the
Registrant's Form S-1).
5.1* Legal Opinion of Cooley Godward LLP.
8.1* Tax Opinion of Cooley Godward LLP.
8.2* Tax Opinion of Saul, Ewing, Remick & Saul LLP.
10.1 1997 Equity Incentive Plan Certificate (incorporated by reference to Exhibit 10.1 to the
Registrant's Form S-1).
10.1.1 Form of Incentive Stock Option between the Registrant and its employees, directors, and
consultants (incorporated by reference to Exhibit 10.1.1 to the Registrant's Form S-1).
10.1.2 Form of Non-Statutory Stock Option between the Registrant and its employees, directors, and
consultants (incorporated by reference to Exhibit 10.1.2 to the Registrant's Form S-1).
10.1.3 Form of Non-Statutory Stock Option (United Kingdom) between the Registrant and its United
Kingdom resident employees, directors, and consultants (incorporated by reference to
Exhibit 10.1.3 to the Registrant's Form S-1).
10.1.4 Form of 1997 Equity Incentive Plan Notice of Exercise between the Registrant and its
employees, directors, and consultants (incorporated by reference to Exhibit 10.1.4 to the
Registrant's Form S-1).
10.2 1997 Non-Employee Directors' Stock Option Plan (incorporated by reference to Exhibit 10.2 to
the Registrant's Form S-1).
10.2.1 Form of Non-Statutory Stock Option (Initial Option-Continuing Non-Employee Directors) between
the Registrant its continuing non-employee directors (incorporated by reference to Exhibit
10.2.1 to the Registrant's Form S-1).
10.2.2 Form of Non-Statutory Stock Option (Initial Option-New Non-Employee Directors) between the
Registrant and its non-employee directors (incorporated by reference to Exhibit 10.2.2 to
the Registrant's Form S-1).
10.2.3 Form of Non-Statutory Stock Option (Annual Option) between the Registrant and its
non-employee directors (incorporated by reference to Exhibit 10.2.3 to the Registrant's
Form S-1).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ----------- ---------------------------------------------------------------------------------------------
<C> <S> <C>
10.2.4 Form of 1997 Non-Employee Directors' Stock Option Plan Notice of Exercise between the
Registrant and its non-employee directors (incorporated by reference to Exhibit 10.2.4 to
the Registrant's Form S-1).
10.3 1994 Restricted Stock Plan, as amended (incorporated by reference to Exhibit 10.3 to the
Registrant's Form S-1).
10.3.1 Form of Amended and Restated Restricted Stock Agreement between the Registrant and its
executive officers (incorporated by reference to Exhibit 10.3.1 to the Registrant's Form
S-1).
10.3.2 Form of Loan and Pledge Agreement between the Registrant and its vice presidents
(incorporated by reference to Exhibit 10.3.2 to the Registrant's Form S-1).
10.3.3 Form of Secured Promissory Note (Non-Recourse) between the Registrant and its vice presidents
(incorporated by reference to Exhibit 10.3.3 to the Registrant's Form S-1).
10.4 Second Amended and Restated Associate 401(k) and Stock Ownership Plan (incorporated by
reference to Exhibit 10.4 to the Registrant's Form S-1).
10.5 First Amendment to the Second Amended and Restated Associate 401(k) and Stock Ownership Plan
(incorporated by reference to Exhibit 10.5 to the Registrant's Form S-1).
10.6 1997 Non-Employee Director Restricted Stock Plan (incorporated by reference to Exhibit 10.6
to the Registrant's Form S-1).
10.6.1 Form of Restricted Stock Agreement between the Registrant and its non-employee directors
(incorporated by reference to Exhibit 10.6.1 to the Registrant's Form S-1).
10.7 Supplemental Executive Retirement Plan (incorporated by reference to Exhibit 10.7 to the
Registrant's Form S-1).
10.8 Form of Indemnity Agreement between the Registrant and its directors and executive officers
(incorporated by reference to Exhibit 10.8 to the Registrant's Form S-1).
10.9 Lease, dated as of October 3, 1996, between the Registrant and Landmark Square Associates,
L.P. for the Registrant's principal executive offices in Long Beach, CA (incorporated by
reference to Exhibit 10.9 to the Registrant's Form S-1).
10.10 Credit Agreement between the Registrant and Wells Fargo Bank, dated December 18, 1997
(incorporated by reference to Exhibit 10.10 to the Registrant's Form S-1).
11.1 Statement of Computation of Earnings (Loss) per Share for ISCG (1).
11.2 Statement of Computation of Earnings (Loss) per Share for FCG (2).
21.1 Subsidiaries of the Registrant (incorporated by reference to Exhibit 21.1 to the Registrant's
Form S-1).
23.1 Consent of Grant Thornton LLP.
23.2 Consent of KPMG Peat Marwick LLP.
23.3* Consent of Cooley Godward LLP (See Exhibits 5.1 and 8.1).
23.4* Consent of Saul, Ewing, Remick & Saul LLP (See Exhibit 8.2).
24.1* Power of Attorney.
99.1 Form of ISCG Voting Agreement (incorporated by reference to Exhibit 99.2 of the Registrant's
Form 8-K).
99.2 Form of FCG Voting Agreement (incorporated by reference to Exhibit 99.3 of the Registrant's
Form 8-K).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ----------- ---------------------------------------------------------------------------------------------
<C> <S> <C>
99.3 Form of ISCG Affiliate Agreement (incorporated by reference to Exhibit 99.4 of the
Registrant's Form 8-K.) (See Appendix D-1 of the Joint Proxy Statement/ Prospectus).
99.4 Form of FCG Affiliate Agreement (incorporated by reference to Exhibit 99.5 of the
Registrant's Form 8-K.) (See Appendix D-2 of the Joint Proxy Statement/ Prospectus).
99.5 Registration Rights Agreement (See Appendix E of the Joint Proxy Statement/ Prospectus).
99.6* Form of FCG Proxy Card.
99.7* Form of ISCG Proxy Card.
99.8 Consent of Hambrecht & Quist LLC.
99.9 Consent of Robert W. Baird & Co. Incorporated.
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* Previously filed.
(1) Incorporated by reference to the ISCG Annual Report on Form 10-K for the
year ended December 31, 1997 and the ISCG Quarterly Report on Form 10-Q for
the six- month period ended June 30, 1998.
(2) Incorporated by reference to Exhibit 11.1 of the Registrant's Form S-1 and
Exhibit 11.1 of the Registrant's Quarterly Report on Form 10-Q for the
six-month period ended June 30, 1998.
<PAGE>
EXHIBIT 23.1
CONSENT OF GRANT THORNTON LLP
We have issued our report dated January 17, 1998 (except for Note K, as to
which the date is February 10, 1998), accompanying the consolidated financial
statements of First Consulting Group, Inc. and subsidiaries contained in the
Amendment No. 1 to the Registration Statement and Joint Proxy/ Prospectus. We
consent to the use of the aforementioned report in the Amendment No. 1 to the
Registration Statement and Joint Proxy/Prospectus, and to the use of our name as
it appears under the caption "Experts".
/s/ GRANT THORNTON LLP
Los Angeles, California
October 9, 1998
<PAGE>
EXHIBIT 23.2
The Board of Directors
Integrated Systems Consulting Group, Inc.:
We consent to incorporation by reference in Form S-4 of First Consulting Group,
Inc. of our report dated January 23, 1998, except as to note 14, which is as of
February 27, 1998, relating to the consolidated balance sheets of Integrated
Systems Consulting Group, Inc. and subsidiaries as of December 31, 1997, and
1996, and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the years in the three-year period ended
December 31, 1997, and the related schedule, which report appears in the
December 31, 1997, annual report on Form 10-K of Integrated Systems Consulting
Group, Inc., and to the reference to our firm under the heading "Experts" in the
Joint Proxy Statement/ Prospectus.
KPMG PEAT MARWICK L.L.P.
/s/ KPMG PEAT MARWICK L.L.P.
Philadelphia, Pennsylvania
October 8, 1998
<PAGE>
EXHIBIT 99.8
CONSENT OF HAMBRECHT & QUIST LLC
We hereby consent to the inclusion of our opinion letter dated September 9,
1998 to the Board of Directors of FCG as Appendix B-2 to the Joint Proxy
Statement/Prospectus which forms a part of the Amendment No. 1 to the
Registration Statement on Form S-4 relating to the proposed merger of Foxtrot
Acquisition Sub, Inc., a wholly-owned subsidiary of First Consulting Group,
Inc., with and into Integrated Systems Consulting Group, Inc., and to the
references to such opinion in the Joint Proxy Statement/ Prospectus under the
captions "Summary--Opinion of Financial Advisors," "Approval of the Merger and
Related Transactions--Background of the Merger," "Approval of the Merger and
Related Transactions-- FCG's Reasons for the Merger," and "Approval of the
Merger and Related Transactions--Opinion of Financial Advisor to FCG." In giving
such consent, we do not admit that we come within the category of persons whose
consent is required under Section 7 of the Securities Act of 1933, as amended,
or the rules and regulations issued by the Securities and Exchange Commission
thereunder (collectively, the "Securities Act") nor do we admit that we are
experts with respect to any part of such Registration Statement within the
meaning of the term "expert" as used in the Securities Act.
HAMBRECHT & QUIST LLC
By: /s/ DAVID G. GOLDEN
David G. Golden
Managing Director
October 9, 1998
<PAGE>
EXHIBIT 99.9
CONSENT OF ROBERT W. BAIRD & CO. INCORPORATED
We hereby consent to the inclusion of our opinion letter dated September 9,
1998 to the Board of Directors of ISCG as Appendix B-1 to the Joint Proxy
Statement/Prospectus which forms a part of the Amendment No. 1 to the
Registration Statement on Form S-4 relating to the proposed merger of Foxtrot
Acquisition Sub, Inc., a wholly-owned subsidiary of First Consulting Group,
Inc., with and into Integrated Systems Consulting Group, Inc., and to the
references to such opinion in the Joint Proxy Statement/ Prospectus under the
captions "Summary--Opinion of Financial Advisors," "Approval of the Merger and
Related Transactions--Background of the Merger," "Approval of the Merger and
Related Transactions-- ISCG's Reasons for the Merger," and "Approval of the
Merger and Related Transactions--Opinion of Financial Advisor to ISCG." In
giving such consent, we do not admit that we come within the category of persons
whose consent is required under Section 7 of the Securities Act of 1933, as
amended, or the rules and regulations issued by the Securities and Exchange
Commission thereunder (collectively, the "Securities Act") nor do we admit that
we are experts with respect to any part of such Amendment No. 1 to the
Registration Statement within the meaning of the term "expert" as used in the
Securities Act.
/s/ ROBERT W. BAIRD & CO. INCORPORATED
October 9, 1998
